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Advertising and entry deterrence: how the size of the market matters

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  • Bennour, Khaled

Abstract

Schmalensee (1974) shows that, when the cost functions of the advertising e¤ort are linear, the monopoly position is only sustained when the advertising�s e¤ectiveness of the incumbent is relatively high. We show that this result does not hold in a more general nonlinear cost. The no-entry equilibrium may hold even when the relative e¤ectiveness of the incumbent is low. This happens when the size of the market is su¢ ciently low.

Suggested Citation

  • Bennour, Khaled, 2006. "Advertising and entry deterrence: how the size of the market matters," MPRA Paper 17233, University Library of Munich, Germany, revised 07 Feb 2007.
    • Handle: RePEc:pra:mprapa:17233
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    References listed on IDEAS

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    1. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
    2. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    3. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    4. Richard Schmalensee, 1976. "A Model of Promotional Competition in Oligopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(3), pages 493-507.
    5. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
    6. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
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    Cited by:

    1. Keisuke Hattori & Keisaku Higashida, 2023. "Who should be regulated: Genuine producers or third parties?," Journal of Economics, Springer, vol. 138(3), pages 249-286, April.

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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