Munich Personal RePEc Archive

Advertising and entry deterrence: how the size of the market matters

Bennour, Khaled (2006): Advertising and entry deterrence: how the size of the market matters. Published in: International Journal of Business and Economics , Vol. 6, No. 3 (December 2007): pp. 199-206.

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Abstract

Schmalensee (1974) shows that, when the cost functions of the advertising e¤ort are linear, the monopoly position is only sustained when the advertising�s e¤ectiveness of the incumbent is relatively high. We show that this result does not hold in a more general nonlinear cost. The no-entry equilibrium may hold even when the relative e¤ectiveness of the incumbent is low. This happens when the size of the market is su¢ ciently low.

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