A Closed-Form Model of Advertising Intensity and Market Structure

This paper develops a closed form model that relates advertising intensity and market concentration. The shape of this relationship depends on the combative (or market share) effect of advertising. If this effect does not exist, advertising intensity falls as an industry fragments. If the combative effect is moderate, there is an inverted U relationship between advertising intensity and market structure. When the combative effect is very strong, advertising intensifies when there are more competitors. This paper studies whether advertising aids competition or monopolization, and if there is excessive or insufficient advertising.