Advertising and Entry Deterrence: How the Size of the Market Matters

Bennour, Khaled (2007): Advertising and Entry Deterrence: How the Size of the Market Matters. Published in: International Journal of Business and Economics , Vol. 6, No. 3 (2007): pp. 199-206.

Abstract

We analyze the relationship between market size and entry when an incumbent and potentially an entrant compete to gain market share and advertising is the only strategic variable. Entry occurs when the relative effectiveness of incumbent's advertising is smaller than a threshold level that depends on the size of the market. This threshold level is monotonically and positively related to market size. Consequently, equilibrium with entry is more likely the greater is the size of the market.

• Item Type: MPRA Paper
• Language: English
• Keywords: advertising; entry; market size
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection

References

Cooper, L. G. and M. Nakanishi, (1988), Market-Share Analysis, Boston: Kluwer.

Ellison, G., and S. F. Ellison, (2000), “Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration,” MIT Working Paper.

Hellerstein, J., (1998), “The Importance of the Physician in the Generic versus Trade-Name Prescription Decision,” the Rand Journal of Economics, 29, 108-136.

Hirshleifer, J., (1995), “Anarchy and its breakdown,” Journal of Political Economy, 103, 26-52.

Nitzan, S., (1994), “Modeling rent-seeking contests,” European Journal of Political Economy, 10, 41-60.

Schmalensee, R., (1972), The Economics of Advertising, Amsterdam: North Holland.

Schmalensee, R., (1974), “Brand Loyalty and Barriers to entry,” Southern Economic Journal, 40, 579-588.

Scott Morton, F. M., (2000), “Barriers to Entry, Brand Advertising, and Generic Entry in the U. S. Pharmaceutical Industry,” International Journal of Industrial Organization, 18, 1085-1104.