Non-price advertising and price competition: a theory, and evidence from the Brazilian beer market

Renato D.B. Gomes and Joao Manoel Pinho De Mello
Additional contact information
Renato D.B. Gomes: Ph.D. Student, Department of Economics - Northwestern University.

No 525, Textos para discussão from Department of Economics PUC-Rio (Brazil)

Abstract: By engendering horizontal differentiation, non-price advertising increases the incentives to accommodate on the price dimension. However, advertising also increases the size of the market and, consequently, the payoffs to price undercutting, which induces more aggressive price competition. We propose a theory in which advertising has a different effect on price competition according to the level of market maturity. In mature markets - where potential growth in low - only the price accommodation effect is present. In immature markets, both effects are present. Therefore, advertising is more procompetitive (less anti-competitive) in immature markets. Evidence from several Brazilian beer markets corroborates the theory.

New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
Date: 2006-05
View list of references

Downloads: (external link)
http://www.econ.puc-rio.br/pdf/td525.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:rio:texdis:525

Access Statistics for this paper

More papers in Textos para discussão from Department of Economics PUC-Rio (Brazil)
Contact information at EDIRC.
Series data maintained by ().