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Advertising and R&D: Theory and evidence from France

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  • Philippe Askenazy

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IZA - Institute for the Study of Labor - IZA, Banque de France - Banque de France)

  • Thomas Breda

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Delphine Irac

    (Banque de France - Banque de France)

Abstract

This paper exploits a unique panel of 59,000 French firms over 1990-2004 to investigate the interactions between R&D, advertising and the competitive environment.The empirical findings confirm the predictions of a dynamic model that complements results known in static frameworks. First, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Second, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D.

Suggested Citation

  • Philippe Askenazy & Thomas Breda & Delphine Irac, 2010. "Advertising and R&D: Theory and evidence from France," PSE Working Papers halshs-00564988, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00564988
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00564988
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    References listed on IDEAS

    as
    1. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
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    8. repec:bla:jindec:v:47:y:1999:i:2:p:169-94 is not listed on IDEAS
    9. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    10. Lambert Schoonbeek & Peter Kooreman, 2007. "The Impact Of Advertising In A Duopoly Game," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 565-581.
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    Cited by:

    1. Su, Zhifang & Wang, Luhan & Liao, Jing & Cui, Xin, 2023. "Peer effects in corporate advertisement expenditure: Evidence from China," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Kwon, He-Boong & Lee, Jooh & Choi, Laee, 2022. "Dynamic interplay of operations and R&D capabilities in U.S. high-tech firms: Predictive impact analysis," International Journal of Production Economics, Elsevier, vol. 247(C).
    3. Jian Xu & Feng Liu & You-hua Chen, 2019. "R&D, Advertising and Firms’ Financial Performance in South Korea: Does Firm Size Matter?," Sustainability, MDPI, vol. 11(14), pages 1-16, July.
    4. Parisa Pourkarimi & Gamal Atallah, 2020. "The Impact of Cooperative R&D and Advertising on Innovation and Welfare," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 143-167, March.

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    Keywords

    advertising; innovation; competition; Lerner;
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