Advertising and Cost Reduction

Giovanni Immordino

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 15

Abstract: Consider a Cournot oligopoly where producers launch new products. At first potential buyers are unaware of the product, and firms decide on levels of production, advertising expenditure and a cost-reducing investment. We find the conditions for complementarities among scale, advertising and innovation strategies to arise. In a duopoly with substitute products all variables are higher for the firm that moves from mass advertising to targeted advertising but decrease for the other. In an oligopoly with complementary products all variables are higher for all firms when they shift away from mass marketing. We conclude by linking our results to the empirical literature on internalization which finds a positive relationship between advertising intensity and foreign direct investment.

Keywords: informative advertising; targeting; foreign direct investment; cost reduction (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Working Paper: Advertising and Cost Reduction (2007)
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DOI: 10.2202/1935-1704.1530

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