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Advertising Behaviour In The Indian Automobile Industry

  • Dr. Sangeeta D. Misra
  • Dr. Dheeraj Misra
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    This study attempts to find out the factors, which determine the advertising intensity of firms in the Indian automobile industry. The theoretical model used is Schmalensee's ertention of the Dorfman-Steiner model of advertising. The theoretical model shows that the ratio of advertising expenditure to sales for a firm depends upon its price cost margin; its elasticity of demand with respect to own advertising (b) and with respect to other firm's advertising (c), and on the elasticity of advertising response of other firms to own advertising (d). Before the theoretical model could be empirically tested, estimates of the three elasticity parameters, (b), (c) and (d) were made at the firm level using time series data. Results showed elasticities '(b)' and '(d)' to be significant parameters while elasticity 'c' turned out to be an insignificant parameter at the firm level. Finally, the Dorfrnan-Steiner model was tested by regressing advertising intensity (defined as the ratio of advertising expenditure to sales) on price cost margin, own advertising elasticity of demand (b) and on elasticity of response of rivals to own advertising (d), using cross section data. Results indicate that the model is applicable to a large extent in the Indian automobile industry.

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    Article provided by IUP Publications in its journal The IUP Journal of Applied Economics.

    Volume (Year): III (2004)
    Issue (Month): 6 (November)
    Pages: 42-59

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    Handle: RePEc:icf:icfjae:v:03:y:2004:i:6:p:42-59
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