Advertising and Competition in Banking: A Comment

• Published date: 01 June 1974
• Date: 01 June 1974
• DOI: 10.1177/0003603X7401900210
• Author: Morton Schnabel
• Subject Matter: Article

ADVERTISING

AND COMPETITION IN BANKING:

A COMMENT

by

MORTON

SCHNABEL·

Franklin

R.

Edwards'

intraindustry

study of advertising

and competition in banking- adapts to the banking

industry

statistical tests conducted in interindustry studies by

Lester

'I'elser" and by W. Comanor

and

T. Wilson.! As

Edwards

seems to realize, there

are

theoretical bases on which one

might question the choice of the advertising-sales ratio as an

independent variable in studies of concentration and profit

rates. The purpose of this comment, however, is to point out

that, given the relevance of the advertising-sales ratio, there is

no a

priori

correspondence between the advertising-sales

ratio

and the advertising-net income ratio

that

allows the

latter

to

be employed as a suitable proxy for the former.

Edwards'

use of the advertising-net income

ratio

where Telser and

Comanor and Wilson use the advertising-sales ratio, there-

fore, does not provide

further

empirical testing of the hy-

potheses tested by the authors quoted.

The difference would be clearer

if

one were dealing with

amanufacturing industry. Assume

that

two identical such

industries follow different paths.

In

the first case advertis-

ing-sales ratios

are

raised above those reached in the second,

and, following the theories tested by Telser

and

Comanor and

Wilson, concentration is

greater

in the first

than

the second,

•General

Electric-TEMPO,

Washington, D. C.

1F. R. Edwards, "Advertising and Competition in Banking,"

The

Antitrust

Bulletin,

Spring

1973, 23-32.

2L. Telser, "Advertising

and

Competition," Journal of Political

Economy, December 1964, 537-62,

and

"Another Look

at

Advertising

and

Concentration," The Journal of Industrial Economics, November

1969, 85-94.

SW. Comanor

and

T. Wilson, "Advertising, Market

Structure

and

Performance," Review of Economics and Statistics, November 1967,

423-40.

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