Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 16

In a statement to Gillette's shareholders, Chairman and CEO James Kilts indicated, "Despite several new product launches, Gillette's advertising-to-sales declined dramatically... to 7.5 percent last year. Gillette's advertising spending, in fact, is one of the lowest in our peer group of consumer product companies." If the elasticity of demand for Gillette's consumer products is similar to other firms in its peer group (which averages - 4), what is Gillette's advertising elasticity? Is Gillette's demand more or less responsive to advertising than other firms in its peer group? Explain.