A Simultaneous Analysis of Food Industry Conduct

Intense advertising and new product introduction are substitute forms of entry‐deterring conduct practiced by producers of more differentiable food products. A simultaneous equation model is estimated to explain the relationship between these alternate forms of conduct and product class structure and performance. The results support the view that advertising is a barrier to entry rather than information that would facilitate entry. The extent of government‐imposed identity standards within a product class is inversely related to advertising intensity and the rate of new product introduction but may artificially fill the product space, making entry more difficult.