Profit raising entry with upstream advertising

Qing Hu () and Tomomichi Mizuno
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Qing Hu: Kansai University

No 2514, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: We consider a vertical market structure involving an upstream firm that invests in advertising and n downstream firms producing differentiated products. We investigate whether the entry of new firms in the downstream market can enhance the profits of incumbents. Our findings reveal that entry may increase incumbent firms’ profits when the degree of product substitutability is low or the number of downstream firms is small. This result challenges the conventional view that entry is inherently detrimental to incumbents. Additionally, we demonstrate that our primary conclusions hold under persuasive upstream advertising and in Bertrand competition settings.

Pages: 16 pages
Date: 2025-04
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