The Review of Economics and Statistics Vol. 68 No. 1 1986
Advertising, Sunk Costs, and Barriers to Entry
Abstract
This paper tests hypotheses about the entry-deterring effects of advertising. The model isolates three separate effects of advertising on entry: the effect on the irrecoverable costs of entry, the effect on the uncertainty underlying the entry environment, and the effect on the measured rates of profit. We find that advertising impedes entry since necessary advertising expenditures give rise to a sunk cost which raises the risk of entry. However, we also find a countervailing force due to advertising, in that the entrant perceives a greater likelihood of success in markets where advertising is important. Our analysis shows that the overall impact of advertising on entry is positive.
- DOI
- 10.2307/1924931
- Volume
- 68
- Issue
- 1
- Pages
- 84
- Sources
- openalex crossref