In Korea, as society becomes more affluent, the role of nonprice competition, especially advertising, becomes greater in our life and it is needed to cope with its influence on economic system.
The main purpose of this study is to investigate the influence of advertising on market competition. There are two main streams in interpreting the characteristics of advertising. The one is to regard the advertising as having the persuasive nature and creating the barrier to entry to forestall the potential entrance and making the firm's demand curve more inelastic. So with this view, the advertising makes the matters worse and decreases the market competition. The other stresses its informative nature, and regards it as a means of entrance and making the demand curve more elastic. So they view it as increasing the market competition.
To analyze the role of advertising in Korea, regressions and table analyses are implemented using data from 54 manufacturing industries and 76 firms in 1981-82. The main result is that in general the advertising can be used as reinforcing the firms advantages, despite whether it is first created by advertising or not. And in some cases, it can also be used as a means of entry.
So as Kaldor pointed out, it is a problem of degree and there is no contradiction in believing both that advertising is crucial in facilitating firm's entry into new markets and that these entry cost might be steep enough to discourage entry.
And the advertising can be analyzed more precisely when we take account of the advertised good's life-cycle.
Consequently, it is not an easy thing to decide on any anti-advertising policy. But, at least, the adverse effect of advertising can be mitigated by making available to consumers objective information on the relative qualities of competing product and the government's extensive policies are needed to activate things.
