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Advertising and the Evolution of Market Structure in the US Car Industry

  • Geroski, Paul A
  • Mazzucato, Mariana

This Paper focuses on a single simple stylized fact which stands out from the post-war history of the US Car industry, namely that industry concentration fell just at the same time as industry advertising expenditures rose sharply. Since both events were almost certainly caused by the entry and market penetration of (largely) foreign owned car producers, this stylized fact raises interesting questions about whether – and if so, how advertising affects entry. We use a model of consumer switching behaviour to help interpret the facts. The model predicts a simple linear association between market and advertising shares (which we observe fairly clearly at two different levels of aggregation in the data), and provides the basis for arguing that advertising can facilitate entry, but only for finite periods of time.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2860.

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Date of creation: Jun 2001
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Handle: RePEc:cpr:ceprdp:2860
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  1. Schmalensee, Richard, 1976. "A Model of Promotional Competition in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 493-507, October.
  2. Smiley, Robert, 1988. "Empirical evidence on strategic entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 167-180.
  3. Geroski, P A & Murfin, A, 1991. "Entry and Intra-industry Mobility in the UK Car Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 341-59, November.
  4. Rizzo, John A & Zeckhauser, Richard J, 1990. "Advertising and Entry: The Case of Physician Services," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 476-500, June.
  5. Cubbin, John S & Domberger, Simon, 1988. "Advertising and Post-entry Oligopoly Behaviour," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 123-40, December.
  6. Leffler, Keith B, 1981. "Persuasion or Information? The Economics of Prescription Drug Advertising," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 45-74, April.
  7. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
  8. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  9. Smallwood, Dennis E & Conlisk, John, 1979. "Product Quality in Markets Where Consumers are Imperfectly Informed," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 1-23, February.
  10. Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-34, June.
  11. Alemson, M A, 1970. "Advertising and the Nature of Competition in Oligopoly Over Time: A Case Study," Economic Journal, Royal Economic Society, vol. 80(318), pages 282-306, June.
  12. Caroline Elliott, 2001. "A Cointegration Analysis of Advertising and Sales Data," Review of Industrial Organization, Springer, vol. 18(4), pages 417-426, June.
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