Advertising and entry deterrence: how the size of the market matters
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.
|Date of creation:||2006|
|Date of revision:||07 Feb 2007|
|Publication status:||Published in International Journal of Business and Economics 3.6(2007): pp. 199-206|
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NBER Working Papers
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