Innovation and Advertising: Theory and Evidence

32 Pages Posted: 7 Jul 2010

See all articles by Philippe Askenazy

Philippe Askenazy

CNRS; IZA Institute of Labor Economics; Paris School of Economics (PSE)

Thomas Breda

Banque de France

Delphine Irac

Banque de France

Date Written: May 1, 2010

Abstract

Advertising and innovation are two engines for firms to escape competition through a better attraction power toward consumers or quality advantage. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. This model provides two main predictions. First, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D. Second, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Empirical evidence from a large panel of 59,000 French firms over 1990-2004 supports these two properties.

Keywords: advertising, innovation, competition, Lerner

JEL Classification: D4, O31, D12

Suggested Citation

Askenazy, Philippe and Breda, Thomas and Irac, Delphine, Innovation and Advertising: Theory and Evidence (May 1, 2010). Banque de France Working Paper No. 284. Available at SSRN: https://ssrn.com/abstract=1635204 or http://dx.doi.org/10.2139/ssrn.1635204

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Thomas Breda

Banque de France ( email )

Paris
France

Delphine Irac

Banque de France ( email )

Paris
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
122
Abstract Views
922
rank
246,433
PlumX Metrics