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Advertising and Cost Reduction

Listed author(s):
  • Immordino Giovanni

    ()

    (Università di Salerno and CSEF)

Consider a Cournot oligopoly where producers launch new products. At first potential buyers are unaware of the product, and firms decide on levels of production, advertising expenditure and a cost-reducing investment. We find the conditions for complementarities among scale, advertising and innovation strategies to arise. In a duopoly with substitute products all variables are higher for the firm that moves from mass advertising to targeted advertising but decrease for the other. In an oligopoly with complementary products all variables are higher for all firms when they shift away from mass marketing. We conclude by linking our results to the empirical literature on internalization which finds a positive relationship between advertising intensity and foreign direct investment.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 9 (2009)
Issue (Month): 1 (April)
Pages: 1-15

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Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:10
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  18. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
  19. Xavier Vives, 2008. "INNOVATION AND COMPETITIVE PRESSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
  20. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
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