Notes on Advertising, Economies of Scale, and Entry Barriers

Abstract

The paper discusses how advertising and economies of scale in production interact to produce economies of scale. The latter are defined to occur when costs per dollar of revenues decline with revenues. It is argued that, in an industry with differentiated products and advertising, it is the declining costs per collar of revenues rather than declining production costs per unit of output that directly affects entry barriers and the profitability of established firms.

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