The Analysis On The Market Entry Barriers Effects Of Advertising

With the rapid development of the economy, advertising, as a sort of tactics of the non-price competition, is more and more important in the marketing management of modern firms. And more and more capital is invested in advertising. One of the reasons that the advertising is increasing day by day is that it has the effect to prevent entry, namely the incumbents can use advertising to build the market entry barriers to prevent the firms that are trying to enter the market. This effect of advertising is general, but the studies on advertising in China are centralized in the fields of advertising art and marketing, so this paper is trying to analyze the entry barriers effects of advertising in the view of industrial organization theory. Firstly, we summarize the interrelated theories about market entry barriers, and give a clear definition and classification of market entry barriers. On the basis of this, we study the strategic entry barriers effects of advertising by game theory. We prove the equilibrium outcome that, relying on advertising, the incumbent changes the profit expectation of the firm that is trying to enter, thereby prevents the entry effectively. And then we discourse sorts of structural entry barriers effects of advertising.Secondly, we inspect the welfare result of the entry barriers effects of advertising basing on the Dixit-Norman Model, the research indicates that the entry barriers effects of advertising prevents the competition, causes the increasing monopoly power of the incumbents, so that it can price beyond the marginal cost without entry, thus the increase in advertising would reduce the welfare of the society, namely the advertising is theoretically excessive. Next we elaborate the possibility of the advertising excessive in China, point the deficiency of the current legislation on advertising, and then propose some policy suggestions for advertising regulation.Lastly, we use the mobile telephone market in China as a case to give an empirical test for the entry barriers effects of advertising that discussed formerly.