Advertise or die: advertising and market share dynamics revisited

Abstract

This paper estimates the effect of advertising expenditure on market shares of the seven leading firms in the Indonesian cigarette industry using recent advances in time series analysis, namely the error correction model. Own and rival's advertising elasticities for the short run and long run are estimated. In addition, the ‘durability’ of advertising effects is estimated. Empirical results show that the effect of advertising on market shares is relatively short-lived, appearing to be substantially depreciated within one year for all firms. It is also found that advertising is less effective for foreign firms in the Indonesian market.