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

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  • Geroski, Paul A
  • Mazzucato, Mariana

Abstract

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.

Suggested Citation

  • Geroski, Paul A & Mazzucato, Mariana, 2001. "Advertising and the Evolution of Market Structure in the US Car Industry," CEPR Discussion Papers 2860, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:2860
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    References listed on IDEAS

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    Cited by:

    1. Suma Athreye & Sandeep Kapur, 2006. "Industrial concentration in a liberalising economy: A study of Indian manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 42(6), pages 981-999.
    2. Varela-Irimia, Xosé-Luís, 2012. "Profitability, uncertainty and multi-product firm product proliferation: The Spanish car industry," Working Papers 2072/181403, Universitat Rovira i Virgili, Department of Economics.
    3. Requena-Silvente, Francisco & Walker, James, 2007. "Investigating sales and advertising rivalry in the UK multipurpose vehicle market (1995-2002)," Journal of Economics and Business, Elsevier, vol. 59(2), pages 163-180.

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    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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