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Profit raising entry with upstream advertising

Author

Listed:
  • Qing Hu

    (Kansai University)

  • Tomomichi Mizuno

    (Kobe University)

Abstract

We consider a vertical market structure involving an upstream firm that invests in advertising and n downstream firms producing differentiated products. We investigate whether the entry of new firms in the downstream market can enhance the profits of incumbents. Our findings reveal that entry may increase incumbent firms’ profits when the degree of product substitutability is low or the number of downstream firms is small. This result challenges the conventional view that entry is inherently detrimental to incumbents. Additionally, we demonstrate that our primary conclusions hold under persuasive upstream advertising and in Bertrand competition settings.

Suggested Citation

  • Qing Hu & Tomomichi Mizuno, 2025. "Profit raising entry with upstream advertising," Discussion Papers 2514, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2514
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