Advertising and Post-Entry Oligopoly Behaviour

This paper uses a two-stage methodology to examine the advertising response to new entry by incumbent firms. In the first stage, time-se ries regressions are employed to identify the advertising responses for a sample of forty-two companies in consumer goods markets. In the second stage, cross-section analysis is used to model the factors that might explain the post-entry increase in advertising. The results suggest a systematic response by dominant firms in static markets, and support the view that entry-deterring behavior is most likely where other entry barriers ar e already present.