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Advertising and Entry Deterrence: How the Size of the Market Matters

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  • Bennour, Khaled

Abstract

We analyze the relationship between market size and entry when an incumbent and potentially an entrant compete to gain market share and advertising is the only strategic variable. Entry occurs when the relative effectiveness of incumbent's advertising is smaller than a threshold level that depends on the size of the market. This threshold level is monotonically and positively related to market size. Consequently, equilibrium with entry is more likely the greater is the size of the market.

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File URL: http://mpra.ub.uni-muenchen.de/22620/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22620.

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Date of creation: Feb 2007
Date of revision: Nov 2007
Publication status: Published in International Journal of Business and Economics 3.6(2007): pp. 199-206
Handle: RePEc:pra:mprapa:22620

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Keywords: advertising; entry; market size;

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  1. Glenn Ellison & Sara Fisher Ellison, 2007. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," NBER Working Papers 13069, National Bureau of Economic Research, Inc.
  2. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
  3. Schmalensee, Richard, 1976. "A Model of Promotional Competition in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 493-507, October.
  4. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  5. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
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