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Advertising and Cost Reduction

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Author Info
Giovanni Immordino () (Università di Salerno and CSEF)

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Abstract

The empirical literature on internalization has found a positive relationship between advertising intensity and foreign direct investment. The model presented in this paper explains this evidence by a technological change in the communications environment and makes predictions for other cost-reducing investments. We consider a market in which a single producer launches a new product. At first potential buyers are unaware of the product and its price, and the producer decides the optimal advertising strategy. We find that both advertising spending and investment in per unit cost reduction are higher under targeting than under mass advertising when the advertising technology exhibits marginal economies of targeting.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 177.

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Date of creation: 01 May 2007
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Handle: RePEc:sef:csefwp:177

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Related research
Keywords: Informative advertising; Targeting; Foreign Direct Investment; Cost reduction;

Other versions of this item:

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  2. Morck, R. & Yeung, B., 1991. "Why Investors Value Multinationality," Working Papers 282, Research Seminar in International Economics, University of Michigan.
    Other versions:
  3. Bester, Helmut & Petrakis, Emmanuel, 1996. "Coupons and oligopolistic price discrimination," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 227-242. [Downloadable!] (restricted)
  4. Lola Esteban & José M. Hernández & José Luis Moraga-González, 2006. "Customer Directed Advertising and Product Quality," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(4), pages 943-968, December. [Downloadable!] (restricted)
  5. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January. [Downloadable!] (restricted)
    Other versions:
  6. Dunning, John H, 1973. "The Determinants of International Production," Oxford Economic Papers, Oxford University Press, vol. 25(3), pages 289-336, November. [Downloadable!] (restricted)
  7. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Blackwell Publishing, vol. 51(1), pages 63-81, January. [Downloadable!] (restricted)
  8. repec:fth:michin:282 is not listed on IDEAS
  9. Alan Rugman, 1980. "Internalization as a general theory of foreign direct investment: A re-appraisal of the literature," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 116(2), pages 365-379, June. [Downloadable!] (restricted)
  10. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-23, March. [Downloadable!] (restricted)
  11. Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May. [Downloadable!] (restricted)
  12. Esteban, Lola & Gil, Agustin & Hernandez, Jose M, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Blackwell Publishing, vol. 49(2), pages 161-80, June. [Downloadable!] (restricted)
  13. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October. [Downloadable!] (restricted)
  14. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August. [Downloadable!] (restricted)
  15. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February. [Downloadable!] (restricted)
  16. Grubaugh, Stephen G, 1987. "Determinants of Direct Foreign Investment," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 149-52, February. [Downloadable!] (restricted)
  17. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn. [Downloadable!] (restricted)
  18. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 465-91, October. [Downloadable!] (restricted)
  19. Hernandez-Garcia, Jose M., 1997. "Informative advertising, imperfect targeting and welfare," Economics Letters, Elsevier, vol. 55(1), pages 131-137, August. [Downloadable!] (restricted)
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