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Sales and advertising with spillovers at the firm level: estimation of a dynamic structural model on panel data

Author

Listed:
  • Emmanuel Duguet

    (CEME - Université Paris 1 & INSEE - Division Marchés et Stratégies d'Entreprises)

  • Nicolas Iung

    (INSEE - Division Marchés et Stratégies d'Entreprises)

Abstract

The aim of this paper is to study the relationship between advertising and sales of French manufacturing firms. First, we use a simple theoretical model compatible with past econometric studies of sales and advertising and extend it to dynamics. We show that the models that do not account for the dynamic features of advertising lead to overstate the impact that advertising has on sales. Second, we estimate our model while accounting for the main problems encountered in the previous econometric studies: simultaneity between sales and advertising and fixed effects, using the generalized method of moments. We use new data on advertising expenditures for 4882 firms over 1988-1994. We find that advertising allows for product differentiation in some industries, that advertising by competitors always has a non-negative effect on own sales and that the depreciation of advertising is higher than suggested in previous studies, always above 60%

Suggested Citation

  • Emmanuel Duguet & Nicolas Iung, 1998. "Sales and advertising with spillovers at the firm level: estimation of a dynamic structural model on panel data," Cahiers de la Maison des Sciences Economiques 98017, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:98017
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    Keywords

    sales; advertising; spillovers; goodwill capital; Euler equation; generalized method of moments; panel data; manufacturing;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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