Essays on advertising in industrial organization
Abstract
The first three essays examine whether strategic precommitment to advertising investment by an established firm can prevent a new firm from entering a homogeneous-product market under various assumptions. In Essay 1, I consider the question under the assumption that (1) advertisements contain product and seller information, and (2) firms compete in prices or quantities after sequentially advertising. I show that when firms compete in prices after advertising, an incumbent can not prevent entry through advertising. When firms do in quantities, an incumbent can optimally by underinvesting in advertising. This finding implies that an incumbent's ability to deter entry through this type of advertisements is sensitive to whether firms compete in prices or quantities. In Essay 2, 1 handle the question under the assumption that (1) advertisements contain product and seller information and influence consumer evaluation of products, and (2) firms set a price after sequentially advertising. Unlike my prediction in Essay 1, I demonstrate that an incumbent can optimally impede entry by investing more in advertising than when it is a monopolist. This suggests that the presence of consumer persuasion through advertising seems critical to whether overinvestment in advertising can optimally deter entry. In Essay 3, I investigate the question under the assumption that (1a) advertisements contain product and seller information, (1b) the relative exposure frequencies to competing advertisements influence consumer evaluation of brands, and (2) firms compete in prices after sequentially advertising. In such an environment, I show that optimal entry deterrence involves excessive, repetitive advertisements by an incumbent. Therefore, repetitively informing consumers of the same information can be justified as a reasonable economic decision by a firm. Essay 4 examines the strategic choice of advertising content by firms. I focus on a case where duopolists simultaneously choose negative or positive advertising and an advertising level in a market for vertically and horizontally differentiated products. Unlike the previous result that when price is exogenous, the firm selling a relatively high-quality product runs positive advertisements, and the firm selling a relatively low-quality product runs negative advertisements, I show that when price is endogenous, both firms may engage in negative advertising.
Degree
Ph.D.
Advisors
Novshek, Purdue University.
Subject Area
Economic theory|Marketing
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