A Study on Effects of Advertising To Market Competition and Regulation

Kim, Hyoung-Rag(Departmant of Economics Graduate School of Yeungnam University)

Directed by Professor Park, Byoung-Jin

The main purpose of this study is to analyze the effect that advertising has influence on market competition and advertising regulation.

In modern economy, the advertising acts as an infortant source of communication. To the producer it offers opportunities to expand sales for his products, to the consumer it gives some informations which can raise the level of utility.

But, in a viewpoint of industrial organization, numers of economist have debated about its impacts on the economy.

Some economists regard advertising as one means by which firms mould tastes and opinions in their direction, while others see advertising as an efficient way for firms to supply information to potential consumers.

Some economists see advertising as a barrier against new entrants which enables the established firm to reap high profits, whilst others see advertising as evidence of competition and as an aid to new entrants in to new entrants in establishing themselves.

This study is to conduct a quantitative empirical analysis on the anticompetitive theories of advertising and to find out the roles of advertising in the Korea manufacturing industries, 1983, 1988.

Results of estimation are as follows :

First, the optimal advertising level is determined by the price elasticity of demand.

Second, the advertising intensities are positively related to concentrations with some significance but not very powerful, and quadratic relationship which was posturated by Greer was statistically insignificant.

Third, but advertising and entry barrier which might be exogenous have non-linear relationship like inversed 'U' shape. This result implies that advertising creates barrier to entry and resolute entry barrier whether was created by advertising or not, reduces advertising expenditure.

Summing up these result, Korea shows persuasive aspect than informative one and it makes a negative effect on social and economic side.

Therefore, it is possible to say that advertising generally mitigates the competition in the market, so that induces the inefficiency in the resourece allocation.