The degree of competition in the advertising industry

After a merger wave began among advertising agencies in the late 1960's, the Federal Trade Commission investigated the anticompetitive effects of the mergers and concluded that the industry would remain competitive. In this paper, we employ a method suggested by Bresnahan to investigate the issue of competition in the advertising industry. The method uses industry-level data over the period 1972–87 to consider the determinants of supply and demand for advertising messages and to calculate the degree of market power on the supply side of the market. Statistical results support the hypothesis that the industry was competitive over this period.We thank Robert Coen of McCann-Erickson, Inc., for providing data on advertising costs and expenditures and W. Bradford Todd of the Richards Group for information about the industry. Lacy Glenn Thomas directed us to McCann-Erickson. We also thank James C. Murdoch, two anonymous referees, and the Editor, William G. Shepherd. Pornpong Sumanun provided research assistance. The usual disclaimer applies.