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Advertising, Concentration, and Profitability: The Simultaneity Problem

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  • Stephen Martin

Abstract

This article examines the identification of a system of equations which seeks to explain industrial profitability, concentration, and advertising intensity. We specify a concentration equation which reflects a dynamic adjustment to a long-run level which depends on the nature of entry conditions. The specification of the concentration equation is seen to be critical to the identification of the profitability equation. We test the model against a sample of input-output table detailed industries and find that the resulting estimates suggest the importance of avoiding the omission of relevant explanatory variables.

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  • Stephen Martin, 1979. "Advertising, Concentration, and Profitability: The Simultaneity Problem," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 639-647, Autumn.
    • Handle: RePEc:rje:bellje:v:10:y:1979:i:autumn:p:639-647
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    Cited by:

    1. Barbara M. Roberts, "undated". "Transition and Changes in Industrial Concentration in Poland," Discussion Papers in European Economics 98/4, Department of Economics, University of Leicester.
    2. Lopez, Rigoberto A. & Bhuyan, Sanjib, 1998. "Determinants of allocative efficiency losses from oligopoly power," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 61-72.
    3. Judd, Kenneth L. & Petersen, Bruce C., 1986. "Dynamic limit pricing and internal finance," Journal of Economic Theory, Elsevier, vol. 39(2), pages 368-399, August.
    4. Jeong, Kap-Young & Masson, Robert T., 2003. "A new methodology linking concentration dynamics to current and steady-state profits:Examining Korean industrial policy during take-off," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1489-1526, December.
    5. Matthias Greuner & David Kamerschen & Peter Klein, 2000. "The Competitive Effects of Advertising in the US Automobile Industry, 1970-94," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(3), pages 245-261.
    6. Iqbal J. Permana & Bernadette Robiani & Taufiq Marwa & Azwardi, 2017. "An Analysis Of Structure, Behavior And Banking Performance Of Islamic Banking In Indonesia," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(1), pages 114-127.
    7. Chen, Jihui & Waters, George, 2017. "Firm efficiency, advertising and profitability: Theory and evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 240-248.
    8. Sizhong Sun, 2014. "Foreign Entry and Firm Advertising Intensity: Evidence from China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 79-97, August.
    9. Elena Podrecca, 2013. "Riforme del mercato dei prodotti e crescita della produttività. Teoria ed evidenza empirica," ECONOMIA E SOCIETÀ REGIONALE, FrancoAngeli Editore, vol. 2013(2), pages 10-41.
    10. Kim B. Clark, 1982. "Unionization and Firm Performance: The Impact on Profits, Growth and Productivity," NBER Working Papers 0990, National Bureau of Economic Research, Inc.
    11. Pilar Beneito & Paz Coscollá-Girona & María Engracia Rochina-Barrachina & Amparo Sanchis, 2015. "Competitive Pressure and Innovation at the Firm Level," Journal of Industrial Economics, Wiley Blackwell, vol. 63(3), pages 422-457, September.
    12. Ronald W. Cotterill, 2007. "Market Definition and Market Power in the British Supermarket Industry," Food Marketing Policy Center Research Reports 098, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    13. Sawyer, Malcolm C., 1982. "On the specification of structure-performance relationships," European Economic Review, Elsevier, vol. 17(3), pages 295-306.
    14. Co, Catherine Y., 2001. "Trade, foreign direct investment and industry performance," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 163-183, January.
    15. repec:pal:jorsoc:v:61:y:2010:i:4:d:10.1057_jors.2009.11 is not listed on IDEAS
    16. Örs, Evren, 2006. "The Role of Advertising in Commercial Banking," CEPR Discussion Papers 5461, C.E.P.R. Discussion Papers.
    17. repec:eee:iepoli:v:40:y:2017:i:c:p:26-40 is not listed on IDEAS
    18. Yoon, Seok, 2004. "A note on the market structure and performance in Korean manufacturing industries," Journal of Policy Modeling, Elsevier, vol. 26(6), pages 733-746, September.
    19. Bhuyan Sanjib & McCafferty Michael, 2013. "U.S. Brewing Industry Profitability: A Simultaneous Determination of Structure, Conduct, and Performance," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-12, November.
    20. Basant, Rakesh & Mishra, Pulak, 2017. "Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period," IIMA Working Papers WP 2017-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    21. repec:bin:bpeajo:v:21:y:1990:i:1990-3:p:287-335 is not listed on IDEAS
    22. Joshua Drucker, 2009. "Trends in Regional Industrial Concentration in the United States," Working Papers 09-06, Center for Economic Studies, U.S. Census Bureau.

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