Innovation and Advertising: Theory and Evidence

Philippe Askenazy, Thomas Breda () and Delphine Irac

Working papers from Banque de France

Abstract: Advertising and innovation are two engines for firms to escape competition through a better attraction power toward consumers or quality advantage. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. This model provides two main predictions. First, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D. Second, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Empirical evidence from a large panel of 59,000 French firms over 1990-2004 supports these two properties.

Keywords: Advertising; Innovation; Competition; Lerner. (search for similar items in EconPapers)
JEL-codes: D12 D4 O31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010
New Economics Papers: this item is included in nep-com, nep-ino, nep-mkt and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:284

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