Advertising and Entry Deterrence: How the Size of the Market Matters

Abstract

We analyze the relationship between market size and entry when an incumbent and a potential entrant compete to gain market share and advertising is the only strategic variable._x000D_ Entry occurs when the relative effectiveness of incumbent’s advertising is smaller than a_x000D_ threshold level that depends on the size of the market. This threshold level is monotonically_x000D_ and positively related to market size. Consequently, equilibrium with entry is more likely the greater is the size of the market.