Advertising and R&D: theory and evidence from France
Journal article: Advertising and innovation are two engines for firms to escape competition and improve profits. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. It provides three 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, the inverted-U relation between competition and R&D still holds with the introduction of advertising. Third, more competition is associated with on average more advertising expenditures. Empirical evidence from a large panel of 59,000 French firms over 1990–2004 supports these three properties.
Author(s)
Philippe Askenazy, Thomas Breda, Delphine Irac
Journal
- Economics of Innovation and New Technology
Date of publication
- 2016
Keywords JEL
Keywords
- Advertising
- R&D
- Innovation
- Competition
- Lerner
Pages
- 33-56
URL of the HAL notice
Version
- 1
Volume
- 25