Economics Letters 67 (2000) 337–343 www.elsevier.com / locate / econbase Informative advertising and entry deterrence: a Bertrand model * Hiroaki Ishigaki Department of Management and Economics, Aomori Public College, 153-4 Goshizawa Yamazaki, Aomori, Aomori 030-0196, Japan Received 8 June 1999; accepted 21 October 1999 Abstract This paper shows that strategic entry deterrence via informative advertising is impossible in a game of sequential advertising followed by simultaneous price setting in a homogenous-product market. It contrasts Schmalensee’s [Journal of Political Economy, 91 (1983) 636–653] result that when the strategic variables at the post-advertising stage are quantities, not prices, optimal entry deterrence is possible and involves underinvest- ment in advertising.  2000 Elsevier Science S.A. All rights reserved. Keywords: Informative advertising; Strategic entry deterrence; Mixed-strategy equilibrium; Bertrand competition JEL classification: L12; M37 1. Introduction Schmalensee (1983) was the first to examine whether an incumbent can deter a new firm’s entry via strategic advertising in subgame perfect equilibrium. The firms are assumed to simultaneously set a quantity after sequentially advertising though he thought ‘it would perhaps be most natural to assume that post-advertising equilibria are noncooperative in price’ (Schmalensee, 1983, p. 649). This is because the subgame has no Bertrand–Nash equilibrium in pure strategies, and the existence of the mixed-strategy Bertrand–Nash equilibrium of the subgame was unknown. This paper examines the ‘natural’ advertising entry-deterrence game whose post-advertising competition is Bertrand, relying on Theorem 5 of Dasgupta and Maskin (1986) which guarantees the existence of the mixed-strategy Bertrand–Nash equilibrium of the post-advertising subgame. I show that, when the post-advertising strategic variables are prices, the incumbent is unable to strategically deter entry via informative advertising. This result highly contrasts Schmalensee’s (1983) that, when *Tel. / fax: 181-177-641-686. E-mail address: ishigaki@nebuta.ac.jp (H. Ishigaki) 0165-1765 / 00 / $ – see front matter  2000 Elsevier Science S.A. All rights reserved. PII: S0165-1765(99)00279-7