Advertising, Competition, and Market Share Instability

Abstract

This paper tests the hypothesis that advertising reduces leading-firm market-share instability (a proxy for interfirm rivalry) by creating market power. If advertising increases product differentiation and brand loyalty, then it also reduces demand cross elasticities and stabilizes shares. Changes over time in the combined market shares of the top four firms are examined for a large sample of four-digit Standard Industrial Classification manufacturing indust ries for 1963-82. Multiple regression equations are used to explain s hare instability, measured as deviations both about the simple mean a nd about a linear time trend. The results indicate that advertising d oes not reduce market share instability. Copyright 1987 by the University of Chicago.

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