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Innovation and Advertising: Theory and Evidence

Author

Listed:
  • Askenazy, P.
  • Breda, T.
  • Irac, D.

Abstract

Advertising and innovation are two engines for firms to escape competition through a better attraction power toward consumers or quality advantage. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. This model provides two main predictions. First, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D. Second, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Empirical evidence from a large panel of 59,000 French firms over 1990-2004 supports these two properties.

Suggested Citation

  • Askenazy, P. & Breda, T. & Irac, D., 2010. "Innovation and Advertising: Theory and Evidence," Working papers 284, Banque de France.
  • Handle: RePEc:bfr:banfra:284
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_284_2010.pdf
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    Cited by:

    1. Cooper, Russell & Kempf, Hubert & Peled, Dan, "undated". "Insulation Impossible: Monetary Policy and Regional Fiscal Spillovers in a Federation," Working Papers WP2010/5, University of Haifa, Department of Economics.
    2. Patrick Llerena & Valentine Millot, 2013. "Are Trade Marks and Patents Complementary or Substitute Protections for Innovation," Working Papers of BETA 2013-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Advertising; Innovation; Competition; Lerner.;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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