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Advertising and the Evolution of Market Structure in the US Car Industry

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  • Geroski, Paul A
  • Mazzucato, Mariana

Abstract

This Paper focuses on a single simple stylized fact which stands out from the post-war history of the US Car industry, namely that industry concentration fell just at the same time as industry advertising expenditures rose sharply. Since both events were almost certainly caused by the entry and market penetration of (largely) foreign owned car producers, this stylized fact raises interesting questions about whether – and if so, how advertising affects entry. We use a model of consumer switching behaviour to help interpret the facts. The model predicts a simple linear association between market and advertising shares (which we observe fairly clearly at two different levels of aggregation in the data), and provides the basis for arguing that advertising can facilitate entry, but only for finite periods of time.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2860.

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Date of creation: Jun 2001
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Handle: RePEc:cpr:ceprdp:2860

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Related research

Keywords: Advertising; entry; US car industry;

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References

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  1. Schmalensee, Richard, 1976. "A Model of Promotional Competition in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 493-507, October.
  2. Leffler, Keith B, 1981. "Persuasion or Information? The Economics of Prescription Drug Advertising," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 45-74, April.
  3. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  4. Rizzo, John A & Zeckhauser, Richard J, 1990. "Advertising and Entry: The Case of Physician Services," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 476-500, June.
  5. Alemson, M A, 1970. "Advertising and the Nature of Competition in Oligopoly Over Time: A Case Study," Economic Journal, Royal Economic Society, vol. 80(318), pages 282-306, June.
  6. Cubbin, John S & Domberger, Simon, 1988. "Advertising and Post-entry Oligopoly Behaviour," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 123-40, December.
  7. Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-34, June.
  8. Smallwood, Dennis E & Conlisk, John, 1979. "Product Quality in Markets Where Consumers are Imperfectly Informed," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 1-23, February.
  9. Smiley, Robert, 1988. "Empirical evidence on strategic entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 167-180.
  10. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
  11. Caroline Elliott, 2001. "A Cointegration Analysis of Advertising and Sales Data," Review of Industrial Organization, Springer, vol. 18(4), pages 417-426, June.
  12. Geroski, P A & Murfin, A, 1991. "Entry and Intra-industry Mobility in the UK Car Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 341-59, November.
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Cited by:
  1. Suma Athreye & Sandeep Kapur, 2006. "Industrial concentration in a liberalising economy: A study of Indian manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 42(6), pages 981-999.
  2. Requena-Silvente, Francisco & Walker, James, 2007. "Investigating sales and advertising rivalry in the UK multipurpose vehicle market (1995-2002)," Journal of Economics and Business, Elsevier, vol. 59(2), pages 163-180.
  3. Xosé-Luís Varela-Irimia, 2012. "Profitability, uncertainty and multi-product firm product proliferation: The Spanish car industry," Working Papers XREAP2012-16, Xarxa de Referència en Economia Aplicada (XREAP), revised Sep 2012.

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