Effects of celebrity endorsement on firms’ competition: from industrial organisation perspective

Abstract Product endorsement is employed by many firms and most studies have proceeded based on management perspectives and ignored the strategic effects (or indirect effects). However, as a non-price competition, product endorsement behaviour’s strategic effects are valuable to be considered and convenient to be captured by industrial organisation perspective. So, this paper’s purpose is to reveal the strategic effects of product endorsement by industrial organisation perspective. First, the results of this paper show that celebrity endorsement decreases the rival’s benefits. Second, under a unique endorser, the lower efficiency (measured by marginal production cost) firm’s celebrity endorsement improves price difference and dispersion, which are direct effects of product endorsement. The higher efficiency firm’s endorsement promotes the producer surplus, consumer surplus and social welfare, which are called indirect effects. Finally, celebrity endorsement has trigger effects. If one firm launches celebrity endorsement, the rational reaction for its rivals is also to engage in a similar behaviour. This paper expands the celebrity endorsement issue from management to economics perspective