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Advertising and entry deterrence: how the size of the market matters

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  • Bennour, Khaled

Abstract

Schmalensee (1974) shows that, when the cost functions of the advertising e¤ort are linear, the monopoly position is only sustained when the advertising�s e¤ectiveness of the incumbent is relatively high. We show that this result does not hold in a more general nonlinear cost. The no-entry equilibrium may hold even when the relative e¤ectiveness of the incumbent is low. This happens when the size of the market is su¢ ciently low.

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File URL: http://mpra.ub.uni-muenchen.de/17233/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17233.

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Date of creation: 2006
Date of revision: 07 Feb 2007
Publication status: Published in International Journal of Business and Economics 3.6(2007): pp. 199-206
Handle: RePEc:pra:mprapa:17233

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Keywords: Advertising; Entry; Market seize;

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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. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
  3. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
  4. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
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