Journal
AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS
Volume 90, Issue 3, Pages 719-732Publisher
BLACKWELL PUBLISHING
DOI: 10.1111/j.1467-8276.2008.01133.x
Keywords
advertising; concentration; generic products
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We examine the decision to advertise a homogenous good. We show that the likelihood of inefficiently low advertising rests heavily on how one models the mechanism by which advertising affects demand. Regardless of this mechanism, however, there is always a lower bound of concentration below which no advertising occurs even when welfare-enhancing. In such cases, mandatory programs will raise welfare if they induce entry, although producer surplus may decline. Our model also provides an explanation for the stylized fact that advertising intensity first rises and then falls as concentration increases.
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