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Economics of Industry Paper
Cartel Policy, Non-Price Competition and Market Structure: Theory and Evidence from the UK (Revised version published in Economica, vol.67 (August 2000), pp.437-456)
George Symeonidis June 1997
Paper No' EI 19:

Tags: market structure; price competition; cartels; endogenous sunk costs; advertising; uk manufacturing.

This paper examines the impact of price competition on advertising/R&D expenditure and market structure. General theoretical results are derived which restrict the space of possible outcomes regarding the behaviour of concentration and advertising/R&D expenditure following an intensification of price competition. The theoretical predictions are tested using UK data on the evolution of competition, concentration and advertising over 1954-1977. The econometric results suggest that the introduction of restrictive practices legislation in the UK cause a rise in concentration in previously cartelised high-advertising manufacturing industries and probably also a fall in advertising intensity.