Advertising and Entry Deterrence: An Exploratory Model

Excerpt from Advertising and Entry Deterrence: An Exploratory Model

In this model, the effects of advertising are infinitely durable, fixed (and sunk) costs give rise to economies of scale, post-entry behavior is non cooperative, and ore-entry expectations are rational. Despite the obvious resemblance to work on the use of investment in production capacity to deter entry, here the incumbent monopolist never finds it optimal to advertise more if entry is possible than if it is not.

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