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Article Dans Une Revue Managerial and Decision Economics Année : 2023

Does competition increase advertising?

Tat-Kei Lai

Résumé

In the Milgrom-Roberts's advertising model, introducing the possibility to die before customers' repurchase alters the firm's advertising incentive to signal hidden product quality. Two opposing forces result, one mechanical and the other strategic. Depending on their relative strengths, the equilibrium advertising can either rise or fall. To the extent that competition threatens firms' survival, our result explains the mixed findings on the causal effects of competition on advertising. Introducing firm deaths in their model offers a new test of whether advertising signals quality, still an unsettled empirical question since Nelson first articulates advertising as a signal in 1974.

Dates et versions

hal-04127958 , version 1 (14-06-2023)

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Travis Ng, Tat-Kei Lai. Does competition increase advertising?. Managerial and Decision Economics, 2023, 44 (6), pp.3233-3248. ⟨10.1002/mde.3874⟩. ⟨hal-04127958⟩
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