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This paper analyzes the effects of investment in advertising in the  three-stage entry game model with one incumbent and one potential entrant  firm. It is shown that if a game theory is applied, under particular  conditions, advertising can be used as a strategic weapon in the market entry  game. Depending on the level of the advertising interaction factor,  conditions for over-investment in advertising for strategic purposes are  given. Furthermore, three specific cases are analyzed: strictly predatory  advertising, informative advertising and the case when one firm’s advertising  cannot directly influence the other firm's profit. For each of them,  depending on the costs of advertising and marginal costs, equilibrium is  determined, and conditions under which it is possible to deter the entry are  given. It is shown that if the value of the advertising interaction factor  increases, power of using advertising as a weapon to deter entry into the  market decreases. Thus, in the case of informative advertising, advertising  cannot be used as a tool for deterring entry into the market, while in the  case of predatory advertising, it can. Also, we have proved that in the case  of strictly informative advertising an over-investment never occurs, while in  the two other cases, there is always over-investment either to deter or to  accommodate the entry

Three-stage entry game: The strategic effects of advertising