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
D12 D4 O O31
Keywords
  • Advertising
  • R&D
  • Innovation
  • Competition
  • Lerner
Pages
  • 33-56
Version
  • 1
Volume
  • 25