Price Competition, Non-Price Competition and Market Structure: Theory and Evidence from the UK

This paper examines the impact of price competition on advertising/R and D expenditure and market structure. A general theoretical result is derived, which restricts the space of possible outcomes regarding the behaviour of concentration and advertising/R and D expenditure following an intensification of price competition. The theory is tested using UK data on the evolution of competition, concentration and advertising over 1954-77. The econometric results suggest that the introduction of restrictive practices legislation in the UK caused a rise in concentration in previously cartelized high-advertising manufacturing industries and probably also a fall in advertising intensity.