Monday, March 7, 2011
Posted by D. Daniel Sokol
Paolo Coccorese (University of Salerno - Econ) explores Strategic Advertising for Entry Deterrence Purposes.
ABSTRACT: This paper evaluates the possible effects of advertising on conditions of entry in a market with one incumbent and one potential entrant. Through a game-theoretic framework, it is shown that the use of pre-entry advertising expenditures (which are supposed to exhibit diminishing returns) may discourage entry even when firms behave rationally and face the same conditions of cost and demand.