Advertising, Barriers to Entry and Competition Policy

Date01 September 1994
Published date01 September 1994
AuthorChristopher Pass,Brian Sturgess,Nicholas Wilson
Subject MatterMarketing
The controversy as to whether or not
advertising impairs the efficient functioning
of markets because it can act as a “barrier” to
new firms entering a market has once again
attracted the interest of the UK competition
authorities. In this article we look at the
advertising-barrier to entry issue as seen in a
number of Monopolies and Mergers
Commission investigations. Our contention is
that not only must the conventional negative
view of advertising be tempered by the
positive role played by advertising in
facilitating actual entry, but also that insofar
as there are a number of other factors which
may inhibit or prevent market entry, it is
necessary to look at this issue “in the round”
rather than from one narrow perspective.
Market Entry: General Considerations
In order to enter a market successfully and
sustain its position over time, a firm must
usually possess some form of competitive
advantage over rival suppliers. According to
Porter (1985) competitive advantage is based
on two main factors: low costs and product
differentiation. Low costs derive from the
exploitation of economies of scale, learning
effects, and the generation of process
invention and innovation. Product
differentiation advantages derive from the
ability of a firm to offer customers products
which are more distinctive/“better than”
competing products, enabling it to establish
brand loyalty. The sources of differentiation
are manifold ranging from variations in the
product itself, “imputed qualities” of the
product imparted by advertising “messages”,
distribution methods and after-sales service
facilities. Product innovation is a key aspect
of sustaining product differentiation
advantages over time.
In practice, there are various obstacles in
the way of firms attempting to enter a market
(see George et al., 1992 for a detailed
review): the minimum efficient scale of
operation may require entry on a large scale,
otherwise entrants would be put at a relative
cost disadvantage; however, the size of the
market might be too small to support another
major supplier; entrants may be put at a cost
disadvantage because they are unable to
access best state-of-the-art process
technology if this is patented by established
firms; entrants with “unknown” and “untried”
Advertising, Barriers to Entry
and Competition Policy
Christopher Pass, Brian Sturgess and Nicholas Wilson
Journal of Product & Brand Management, Vol. 3 No. 3, 1994, pp. 51-58
© MCB University Press, 1061-0421
The present writers were commissioned by the
Office of Fair Trading (OFT) in 1993 to examine
this issue in depth. A report, “Advertising As An
Entry Barrier: A Survey of the Theoretical and
Empirical Evidence” was submitted to the OFT
in 1994.

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