China's Car Industry Advertising, Concentrated, Performance Empirical Research

Chinese saloon car industry is growing quickly in the fifth phase. Chinese saloon car industry dropped behind the saloon car industry of developed country because it developed rather later. Competition in Chinese saloon car is becoming stronger with open to other country after enter WTO. There are many researches on the relationship of market structure and profitability in other country. Majority of the foreign researches are in industry level, the rest are in enterprise level. But the similar searchers are so few in domestic. This article investigates the relationship between advertising, concentration and profitability on enterprise level in the Chinese saloon car industry. The empirical results offer suggestions on how saloon car enterprises choosing strategy of competitive advantage.This paper reviews exiting studies on the relationship of advertising, concentration and profitability. Advertising to sales ratio, market shares, return to sales ratio are used to measure adverting, concentration, profitability. We picked Shanghai Volkswagen, FAW Volkswagen, Shanghai GM, Tianjin FAW Xiali, Guangzhou Honda, Dongfeng Peugeot Citroen Automobile, Changan Suzuki, Geely Car as empirical sample. The sampling period is from 2000 to 2004. Granger causality test and simultaneous equations used in empirical research are the newest approach in this research area. The empirical results are as follows:(1) There is causality relation between adverting and concentration. Enterprises can improve their market shares if they invest more resource in adverting, vice verse.(2) There is causality relation from concentration to profitability, more market shares can bring enterprises more profitability.(3) The change of concentration bring the inverse change of adverting, it show us that enterprises will improve adverting if their market shares reduce.(4) Lagged adverting has negative effect on profitability. This is not causality relationship. It just reflects relationship of increasing adverting and decreasing profitability.