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Advertising, industry innovation, and entry deterrence

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  • Qi, Shi

Abstract

With the advent of the Internet and social media platforms, advertising has become cheaper and more effective in reaching consumers. This paper studies the effect of better informative advertising on innovation and industry growth. This paper finds that improvements in informative advertising can lead to costly entry deterrence. Because advertising and innovation are complementary, better advertising raises the threats of entry. When innovation spillover is present in an industry, an incumbent firm has incentives to strategically lower its own innovation to deter entry. As a result, better advertising in innovation-intensive industries can have negative consequences on industry growth and consumer welfare. This paper also investigate the role of innovation spillover on entry deterrence.

Suggested Citation

  • Qi, Shi, 2019. "Advertising, industry innovation, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 30-50.
    • Handle: RePEc:eee:indorg:v:65:y:2019:i:c:p:30-50
    DOI: 10.1016/j.ijindorg.2018.09.006
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    Cited by:

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    6. Hou, Pengwen & Zhen, Ziyan & Pun, Hubert, 2020. "Combating copycatting in the luxury market with fighter brands," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Advertising; Entry deterrence; Innovation;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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