MARKET SHARE DISPERSION AMONG LEADING FIRMS AS A DETERMINANT OF ADVERTISING INTENSITY

Previous advertising intensity models have failed to address adequatel y the rivalry effects of leading firms trying to protect and enhance t he market shares of their brands. We argue that the relative degree of market share parity among leading firms in oligopolies is a crucial d eterminant of market advertising levels. This study presents a model t hat more thoroughly characterizes market structure by including the va riance in the market shares of the top four firms along with the conce ntration ratio. This model is then tested using a unique 1987 data set of 58 well-defined U.S. food and tobacco manufacturing markets that u sed private data vendors for branded product market shares and media a dvertising aimed at household consumers. We find that industry adverti sing-to-sales ratios are highest in those industries with the highest price-cost margins, highest concentration, and those with equally-size d leading firms. Oligopolists seem unable to control advertising expen ses as concentration increases and they Likely overinvest in advertisi ng rivalry when they have similar market shares.