Rates of Amortization of Advertising Expenditures

Abstract

This article measures the effect of advertising expenditures on the firm's sales in three industries: beer, cigarettes, and new passenger cars. The annual rate of amortization of advertising expenditures was 40-50 percent for beer and 35-45 percent for cigarettes. The advertising effect is explained in these two nondurable industries by an exponential distributed lag model with two lagged variables--the firm's own advertising and that of its competitors. However, with respect to automobile, advertising increases current sales and this in return has a negative effect on future sales.