Generic Product Advertising, Spillovers, and Market Concentration |
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Authors: | George Norman Lynne Pepall Dan Richards |
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Affiliation: | George Norman is the William and Joyce Cummings Family Professor of Entrepreneurship and Business Economics;Lynne Pepall is professor of economics and Dean of the Graduate School of Arts and Sciences;and Dan Richards is professor of economics, all at Tufts University. |
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Abstract: | We examine the decision to advertise a homogenous good. We show that the likelihood of inefficiently low advertising rests heavily on how one models the mechanism by which advertising affects demand. Regardless of this mechanism, however, there is always a lower bound of concentration below which no advertising occurs even when welfare-enhancing. In such cases, mandatory programs will raise welfare if they induce entry, although producer surplus may decline. Our model also provides an explanation for the stylized fact that advertising intensity first rises and then falls as concentration increases. |
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Keywords: | advertising concentration generic products |
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