Innovation and Advertising: Theory and Evidence
AbstractAdvertising and innovation are two engines for firms to escape competition through a better attraction power toward consumers or quality advantage. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. This model provides two main predictions. First, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D. Second, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Empirical evidence from a large panel of 59,000 French firms over 1990-2004 supports these two properties.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 284.
Length: 32 pages
Date of creation: 2010
Date of revision:
Advertising; Innovation; Competition; Lerner.;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-COM-2010-08-21 (Industrial Competition)
- NEP-INO-2010-08-21 (Innovation)
- NEP-MKT-2010-08-21 (Marketing)
- NEP-TID-2010-08-21 (Technology & Industrial Dynamics)
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- Cooper, Russell & Kempf, Hubert & Peled, Dan, .
"Insulation Impossible: Monetary Policy and Regional Fiscal Spillovers in a Federation,"
WP2010/5, University of Haifa, Department of Economics, revised 07 Sep 2010.
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- Patrick Llerena & Valentine Millot, 2013. "Are Trade Marks and Patents Complementary or Substitute Protections for Innovation," Working Papers of BETA 2013-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
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