http://dimetic.dime-eu.org/dimetic_files/DosiResPo1982.pdf

Technological paradigms and technological trajectories: A suggested interpretation of the determinants and directions of technical change

Technological Paradigms and Technological Trajectories

This chapter offers a comprehensive survey of the economic analysis of advertising. A first objective is to organize the literature in a manner that clarifies what is known. A second objective is to clarify how this knowledge has been obtained. The chapter begins with a discussion of the key initial writings that are associated with the persuasive, informative and complementary views of advertising. Next, work that characterizes empirical regularities between advertising and other variables is considered. Much of this work is conducted at the inter-industry level but important industry studies are also discussed. The chapter then offers several sections that summarize formal economic theories of advertising. In particular, respective sections are devoted to positive and normative theories of monopoly advertising, theories of price and non-price advertising, theories of advertising and product quality, and theories that explore the potential role for advertising in deterring entry. At this point, the chapter considers the empirical support for the formal economic theories of advertising. A summary is provided of empirical work that evaluates the predictions of recent theories of advertising, including work that specifies and estimates explicitly structural models of firm and consumer conduct. This work is characterized by the use of industry (or brand) and even household-level data. The chapter then considers work on endogenous and exogenous sunk cost industries. At a methodological level, this work is integrative in nature: it develops new theory that delivers a few robust predictions, and it then explores the empirical relevance of these predictions at both inter-industry and industry levels. Finally, the chapter considers new directions and other topics. Here, recent work on advertising and media markets is discussed, and research on behavioral economics and neuroeconomics is also featured. A final section offers some concluding thoughts.

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The economic analysis of advertising

Chapter 28 The Economic Analysis of Advertising

Pioneering Versus Incremental Innovation: Review and Research Propositions

IN recent years there has been much theoretical discussion and empirical investigation of the factors underlying firms' research and development activities. The relationship between market structure and an industry's R & D activities in particular continues to be the subject of intense debate. This paper attempts to clarify and extend the state of knowledge in this area. Part II outlines the state of the debate concerning the incentive to invent under alternative market structures, emphasizing several unsatisfactory features of the controversy which reduce considerably the practical relevance of the conclusions reached by the respective contributors. Notable in this connection is the implicit assumption that invention itself is monopolized, and the failure adequately to take account of the interdependence which exists between firms' output and R & D decisions. Part III develops a comprehensive analytical framework which shows clearly the nature of the relationship between firms' output and R & D decisions, and the multidimensional nature of the expectations regarding rivals' reactions which are relevant in determining R & D behavior. Part IV interprets the results of recent empirical studies of the determinants of firms' R & D behavior in the light of this analytical framework.

Market Structure and Firms' R & D Behavior

THE conventional theory of entry barriers focuses upon the price and output policies of established firms as a determinant of potential entrants' behavior. According to this body of analysis, advertising can affect entry barriers by influencing firms' cost conditions, either causing scale economies or, if entrants must advertise more than established firms in order to achieve any given level of sales, by creating absolute cost differences between established firms and entrants. This approach to the influence of advertising on entry barriers is incomplete, for several related reasons. Although a situation in which entrants must advertise more than established firms may legitimately be treated in terms of an absolute cost disadvantage for entrant firms, conventional entry barrier theory does not explain what determines the optimal advertising level of established firms and entrants, or the circumstances in which entrants will have higher advertising costs per unit of sales than established firms. A particular level of advertising by entrants and established firms is obviously implicit in all the conventional analyses of entry barriers, since both the market demand and demand for an entrant's product will depend on the level of advertising expenditures of established firms and the entrant. The general assumption that advertising outlays per unit of sales will be higher for entrants than for established firms does not necessarily follow, however, even when established firms' advertising is more effective than that of entrants. It is essential that the determinants of firms' advertising be explicitly integrated into the theory of entry, since the optimal pricing and advertising policies of any firm are interrelated. Section I below summarizes the current state of entry barrier theory and provides an analytical framework for the subsequent extension of the theory to incorporate advertising entry barriers. Section II considers the implications of advertising for a potential entrant's behavior, examining the circumstances in which it is possible for established firms to deter entry by appropriate advertising behavior, and whether it will be optimal for them to do so. Section III considers the relevant empirical evidence pertaining to the relationship between advertising and entry barriers. Although the relationship between advertising and entry barriers is stressed in this paper, the analysis and conclusions apply equally to any type of expenditure which affects the demand conditions for a firm's product.

Douglas Needham

Papers

Market Structure and Firms' R & D Behavior

Entry barriers and non-price aspects of firms' behavior