Advertising Restrictions and Competition in the Childrenâ€™s Breakfast Cereal Industry
In this article I analyze the consequences of advertising in the childrenâ€™s breakfast cereal market. I take advantage of the prohibition on advertising directed at children in the province of Quebec to examine the nature of advertising and to determine whether the restriction hinders competition. I show that prices are higher in Quebec than in Canadian provinces that permit advertising. This finding suggests that the informative role of advertising dominates any persuasive role, since the most likely explanation is that the restriction prevented firms from announcing products' existence or characteristics and thus from overcoming perceived differentiation. If advertising is informative, restricting it should increase the market shares of older, better-known brands and decrease the market shares of newer and/or less well known brands. Empirical analysis supports this prediction: market shares of established brands are larger in Quebec than in the rest of Canada, and the opposite is true for nonestablished brands.
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.:
- Eckard, E Woodrow, Jr, 1991. "Competition and the Cigarette TV Advertising Ban," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 119-133, January.
- Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 941-964.
- Joel Waldfogel & Jeffrey Milyo, 1999.
"The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1081-1096, December.
- Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
- Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising and Prices: Evidence in the Wake of 44 Liquormart," NBER Working Papers 6488, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
- Benham, Lee, 1972. "The Effect of Advertising on the Price of Eyeglasses," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 337-352, October.
- Kwoka, John E, Jr, 1984. "Advertising and the Price and Quality of Optometric Services," American Economic Review, American Economic Association, vol. 74(1), pages 211-216, March.
- Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
- Ulrich Doraszelski & Sarit Markovich, 2007. "Advertising dynamics and competitive advantage," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 557-592, 09.
- Sass, Tim R & Saurman, David S, 1995. "Advertising Restrictions and Concentration: The Case of Malt Beverages," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 66-81, February.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
- Boyer, Kenneth D, 1974. "Informative and Goodwill Advertising," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 541-548, November.
- Matthew Shum, 2004. "Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast-Cereals Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 241-272, 06.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213. Full references (including those not matched with items on IDEAS)