Advertising and the Dynamics of Market Structure: The UK Car Industry, 1958–1983*

This paper looks at the effect of advertising on market share dynamics, developing a model that describes the mechanism by which advertising affects consumer choice and illustrating it with reference to the UK car market. Advertising shares are observed to be highly positively correlated with market shares, suggesting that advertising has both pro- and anti-competitive effects. Advertising facilitates entry in as far as entrants can acquire market share through advertising, but it inhibits entry when an escalation in total industry advertising makes this acquisition prohibitively costly.