Document Type
Article
Journal/Book Title/Conference
Economics Research Institute Study Paper
Volume
16
Publisher
Utah State University Department of Economics
Publication Date
2001
Rights
Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.
First Page
1
Last Page
21
Abstract
There is some debate about whether firms advertise too much or too little. We present a simple model to examine the incentives of a firm to advertise, and distinguish between the market-expansion effect and the business-stealing effect of advertising. Firms advertise homogeneous products (beef) too little relative to the amount that would maximize total industry profits. The possibility of stealing customers from competitors causes firms in differentiated products markets (beer) to advertise too much. Finally, we derive conditions that determine when an expansion in one firm's advertising level increases rival advertising.
Recommended Citation
Hunnicutt, Lynn and Israelsen, L. Dwight, "Incentives to Advertise and Economic Efficiency: The Difference Between Beef and Beer" (2001). Economic Research Institute Study Papers. Paper 229.
https://digitalcommons.usu.edu/eri/229