ADVERTISING, CONCENTRATION AND PROFITABILITY IN MANUFACTURING

This paper predicts an inverted-LI relationship between concentration and advertising only for oligopolistic industries facing relatively less elastic demand curves. It rejects the inverted-LI theory based on the hypothesis that the large firms collude and lends empirical support to the idea that causation runs from Concentration to advertising intensity. By confirming that the effect of advertising on profitability is significant and greater for industries producing homogeneous goods than for those producing heterogeneous goods, this study fails to support the barriers-to-entry hypothesis.