Firms have incentives to invest in wage reducing practices when they expect a high advertising equilibrium in the future product market competition. Incentives to invest in wage reducing practices like shifting the production to the third world or lobbying legislators to change labor market regulation by lowering the bargaining power of workers, can be explained by a link between the product market and labor market which operates through the effect of advertising on demand. Increased advertising implies under general conditions more production and therefore greater incentives to reduce production costs per unit.
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- Blanchard, Olivier J & Giavazzi, Francesco, 2001.
"Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets,"
CEPR Discussion Papers
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3-88-14, Pennsylvania State - Department of Economics.
- Mark J. Roberts & Larry Samuelson, 1988. "An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 200-220, Summer.
- Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
- Kelton, Christina M L & Kelton, W David, 1982. "Advertising and Intraindustry Brand Shift in the U.S. Brewing Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 30(3), pages 293-303, March.
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