ADVERTISING AS AN ANTICOMPETITIVE DEVICE

This dissertation examines the claim that established firms in an industry are able to use advertising to impede entry, a controversial issue in the industrial organization literature. In particular the analysis investigates the possibility that established firms by virtue of their established market position are able to reduce the productivity of advertising supplied by entrants. Advertising by existing firms which has this effect is termed "clouding" advertising. While it is impossible to disentangle clouding effects from the other impacts of a particular advertising message, it is assumed in this dissertation that the clouding effects can be isolated. This allows construction of models of the costs and returns to investments in advertising for entry control. A theoretical model is developed which indicates how the profit maximizing level of advertising depends on the clouding component of that advertising.;These results support the clouding advertising hypothesis. In industries where advertising is an important method of new product promotion, so successful entry requires an intensive advertising campaign, established firms may be able to reduce the productivity of the entrant's advertising and slow entry. Thus advertising can be used by established firms to maintain sectors of monopoly in an otherwise competitive structure longer than would otherwise be possible.;The resulting model is used to structure an empirical test of the clouding hypothesis. This test involves an examination of the effect of industry advertising on the productivity of firm advertising in twelve consumer goods industries. The results indicate that total industry advertising does reduce the productivity of advertising of those individual firms which are engaging in intensive advertising.