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Advertising Restrictions and Competition in the Children’s Breakfast Cereal Industry

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  • C. Robert Clark
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    Abstract

    In this article I analyze the consequences of advertising in the children’s breakfast cereal market. I take advantage of the prohibition on advertising directed at children in the province of Quebec to examine the nature of advertising and to determine whether the restriction hinders competition. I show that prices are higher in Quebec than in Canadian provinces that permit advertising. This finding suggests that the informative role of advertising dominates any persuasive role, since the most likely explanation is that the restriction prevented firms from announcing products' existence or characteristics and thus from overcoming perceived differentiation. If advertising is informative, restricting it should increase the market shares of older, better-known brands and decrease the market shares of newer and/or less well known brands. Empirical analysis supports this prediction: market shares of established brands are larger in Quebec than in the rest of Canada, and the opposite is true for nonestablished brands.

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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/519820
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 50 (2007)
    Issue (Month): ()
    Pages: 757-780

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    Handle: RePEc:ucp:jlawec:v:50:y:2007:p:757-780

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. Beth A. Freeborn & Jason P. Hulbert, 2011. "Persuasive and Informative Advertising: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(1), pages 51-59, January.
    2. Rauch, Ferdinand, 2013. "Advertising expenditure and consumer prices," International Journal of Industrial Organization, Elsevier, vol. 31(4), pages 331-341.
    3. Massimo Motta, 2013. "Advertising bans," SERIEs, Spanish Economic Association, vol. 4(1), pages 61-81, March.

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