Advertising and Cost Reduction

Giovanni Immordino

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: The empirical literature on internalization has found a positive relationship between advertising intensity and foreign direct investment. The model presented in this paper explains this evidence by a technological change in the communications environment and makes predictions for other cost-reducing investments. We consider a market in which a single producer launches a new product. At first potential buyers are unaware of the product and its price, and the producer decides the optimal advertising strategy. We find that both advertising spending and investment in per unit cost reduction are higher under targeting than under mass advertising when the advertising technology exhibits marginal economies of targeting.

Keywords: Informative advertising; Targeting; Foreign Direct Investment; Cost reduction (search for similar items in EconPapers)
JEL-codes: F23 L12 M37 (search for similar items in EconPapers)
Date: 2007-05-01
New Economics Papers: this item is included in nep-mic and nep-mkt
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http://www.csef.it/WP/wp177.pdf (application/pdf)

Related works:
Journal Article: Advertising and Cost Reduction (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:177

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