Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity

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Previous advertising intensity models have failed to address adequately the rivalry effects of leading firms trying to protect and enhance the market shares of their brands. We argue that the relative degree of market share parity among leading firms in oligopolies is a crucial determinant of market advertising levels. This study presents a model that more thoroughly characterizes market structure by including the variance in the market shares of the top four firms along with the concentration ratio. This model is then tested using a unique 1987 data set of 58 well-defined U.S. food and tobacco manufacturing markets that used private data vendors for branded product market shares and media advertising aimed at household consumers. We find that industry advertising-to-sales ratios are highest in those industries with the highest price-cost margins, highest concentration, and those with equally-sized leading firms. Oligopolists seem unable to control advertising expenses as concentration increases and they likely overinvest in advertising rivalry when they have similar market shares.

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