The Moderating Effect Of Product Market Competition In The Relationship Between Advertising Expenditures And Sales

Abstract

While the relationship between advertising expenditures and sales has been much discussed, whether product market competition affects their relationship has been little examined. We address this question by analyzing the financial performance data of 6,018 companies for 14 years (1997-2011). Our data analysis supports two hypotheses that (1) increasing advertising expenditures increase sales in the subsequent year and that (2) this effect is stronger when the product market competition is high than when it is low. Our findings advance the academic understanding of advertising effect as well as provide practical implications to advertising managers.