Advertising and R&D: theory and evidence from France

Philippe Askenazy (1, 2) , Thomas Breda (2, 1) , Delphine Irac (3)

1 PSE - Paris School of Economics
2 PSE - Paris-Jourdan Sciences Economiques
3 Centre de recherche de la Banque de France

Advertising and innovation are two engines for firms to escape competition and improve profits. We propose a model that encompasses both the static and dynamic interactions between R&D, advertising and competitive environment. It provides three main predictions. First, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D. Second, the inverted-U relation between competition and R&D still holds with the introduction of advertising. Third, more competition is associated with on average more advertising expenditures. Empirical evidence from a large panel of 59,000 French firms over 1990–2004 supports these three properties.

Mots clés: advertising; R&D; innovation; competition; Lerner

Domaines: Economies et finances

Philippe Askenazy, Thomas Breda, Delphine Irac. Advertising and R&D: theory and evidence from France. Economics of Innovation and New Technology, 2016, 25 (1), pp.33-56. ⟨10.1080/10438599.2015.1046670⟩. ⟨halshs-01307705⟩