Beggar-Thy-Neighbor Advertising: Theory and Application to Generic Commodity Promotion Programs

Profits from generic advertising by a producer group often come partly at the expense of producers of closely related commodities. The resulting tendency toward excessive advertising is exacerbated by check-off funding. To analyze this beggar-thy-neighbor behavior we compare a scenario where different producer groups cooperate and choose their advertising expenditures jointly to maximize the sum of profits across the groups, and a scenario where they optimize independently. In an illustrative example using 1998 data for U.S. beef and pork, the noncooperatively chosen expenditure on beef and pork advertising is more than three times the cooperative optimum.     

Generic Advertising and Product Differentiation

This article considers whether generic advertising lowers the differentiation among competing brands of the same good. Analytical results show that if the benefits from generic advertising from increased demand are outweighed by the costs from lower product differentiation then high–quality producers will not benefit from generic promotion. Hypotheses are tested empirically under a conditional–logit approach using retail–market sales and advertising data for the U.S. prune industry. Results from this study provide evidence that generic advertising has a slight differential effect on the perceived qualities of different brands.     

Quantity and quality effects of advertising: a demand system approach

Quantity and quality effects of advertising are investigated in this article. A censored demand system is estimated for fish, beef, pork, and other meats using Norwegian household data. In the demand model, generic fish advertising and meat advertising is introduced as demand shifters, and at the same time unit values are treated as endogenous. The unit values capture the quality of the commodities. Empirical findings show that advertising can have both quantity and quality effects on household demand.     

Decomposing the Variation in Generic Advertising Response over Time

A time-varying parameter model of fluid milk and cheese demand reveals that changes in age composition, race composition, and food spending patterns away from home were most important to changes in generic advertising response over time. Advertising response elasticities indicate that generic advertising could be enhanced by targeting young children households for fluid milk, and Asian/Hispanic households for cheese. Results also indicate that shifting targeted advertising efforts to the away-from-home market may increase generic cheese advertising response.     

A CROSS-COMMODITY APPRAISAL OF DEMAND-RAISING RESEARCH BENEFITS: PORK AND CHICKEN IN AUSTRALIA

A multi-commodity model is developed for evaluating the gains from research which raises the demand for a commodity, and applied to the pig and chicken industries in Australia. The major finding is that the gain to pork producers is larger, and the gain to consumers smaller, with a cross-commodity consideration than without. Bigger differences in results are observed with larger values of the cross-price elasticity between pork and chicken, and with a larger shift in demand for chicken. However, the aggregate benefits to the Australian pig industry are not significantly affected by price changes in the market for chicken. The implication of the analysis is that, by ignoring the cross-market feedback between commodities closely related in consumption, consumers (or taxpayers) of the commodity experiencing a rise in demand may bear a higher-than-optimal outlay on public research directed to increasing the demand for that commodity.     

Optimal Institutional Mechanisms for Funding Generic Advertising: An Experimental Analysis

Given the uncertain legal status of generic advertising programs for agricultural commodities, alternative voluntary funding institutions are investigated that could provide a high level of benefits to producers. This experimental study simulates key economic and psychological factors that affect voluntary producer contributions to generic advertising. The results suggest that producer referenda play a critical role in increasing contributions and that producer surplus is maximized by a provision point mechanism instituted by producer referendum with thresholds ranging from 68% to 90%, and expected funding from 47% to 77% of the time, depending on the level of advertising effectiveness.     

The Impact of Generic Advertising on U.S. Household Cheese Purchases: A Censored Autocorrelated Regression Approach

The impacts of generic cheese advertising on U.S. household cheese purchases are examined via the use of a unique household panel. Modest gains in overall at-home cheese purchases from generic cheese advertising appear to be largely the result of strong gains in purchases of natural cheese rather than processed cheese. Results indicate that relatively larger gains in household cheese purchases from generic advertising may be realized by targeting infrequent purchasers to increase purchase frequencies, rather than by targeting households in general to increase their conditional purchase levels.     

Middlemen behaviour and generic advertising rents in competitive interrelated industries

This article focuses on the role of middlemen in determining the returns to generic advertising in a competitive industry where supply is uncontrolled, the price of marketing inputs is endogenous, and retail markets are interrelated through consumer preferences. Theoretical analysis suggests farm-gate returns (quasi-rents) are overstated when input substitution at middlemen level is ignored, a result confirmed in the empirical application. As for mark-up behaviour, represented by the farm-retail price transmission elasticity, a general result is that farm-gate returns to generic advertising always increase as the transmission elasticity decreases, provided retail demand is more elastic than input substitution. Endogenising the price of marketing inputs has little effect on advertising rents.     

Generic Advertising of U.S. Lamb

ABSTRACT

Generic advertising of U.S. lamb by the U.S. sheep and lamb industry is an effort to reverse an almost continual decline in the industry since World War II. This analysis explores the answers to three related questions: (1) What have been the effects of the generic lamb advertising on U.S. and foreign sheep, lamb, and wool markets? (2) Has the generic lamb advertising program effectively increased the consumption of domestically produced lamb as intended rather than imported lamb? (3) What have been the returns to U.S. sheep producers, feeders, and packers who pay for the advertising? Using a 70-equation, non-spatial, price equilibrium, simultaneous econometric simulation model of the world sheep, lamb, and wool markets, the analysis concludes that the U.S. lamb industry’s generic lamb advertising program has positively impacted their markets, enhanced profitability of the industry, and increased the industry’s share of domestic lamb consumption.     

The Canadian Beef and Pork Sectors: New Found Relevance of Live Market Information

The structure of price transmission both vertically (between links in the market channel) and horizontally (between market areas) for beef and pork in Canada is examined. The analysis of vertical price transmission indicates that farmgate prices lead retail prices. The hypothesized relationship between retail and farmgate prices is that the farmgate demand curve is shifted by wholesaler anticipation of the retail price changes. Such a situation would place greater importance on the live markets since prices determined in these markets would eventually be reflected in the retail market. The results have further implications for the determination of price margins and related policy issues.     

Optimal Collective Investment in Generic Advertising, Export Market Promotion and Cost-of-Production-Reducing Research

Optimal investment rules are developed for a producer agency investing in domestic-market generic advertising, export market promotion, and cost-of-production-reducing research. These rules are derived assuming either maximization of producers' surplus or social surplus. The form of the optimality rules differs according to which objective is pursued. Fixed producer agency budgets are also allowed by incorporating a constraint limiting total expenditure on the three activities. Addition of such a constraint substantially alters the structure of the optimal investment rules. Differences in these rules highlight the importance of accounting for the financing mechanism when modeling optimal checkoff fund investment decisions. Optimality rules are simulated using data for the Canadian beef sector. Results suggest historic underinvestment in domestic-market generic advertising but overinvestment in export market promotion. Sensitivity of simulation results underscores the difficulty in assessing optimality of historic producer investment in cost-of-production-reducing research.     

Generic Advertising; and the Structural Heterogeneity Hypothesis

This paper adduces and tests the hypothesis that generic advertising responses are dynamic, i.e., are subject to change over time due to changes in target audiences, managerial expertise, copy quality or other time-related factors. Specifically, the authors consider the structural heterogeneity hypothesis from the perspective of three alternative econometric models that permit random and systematic time-varying response: the Prescott-Cooley model, the return-to-normality model, and the stochastic-trend model. A distinguishing characteristic of the models is the presence or absence of heteroscedasticity. Based on pretests, which failed to detect heteroscedasticity, a modified version of the stochastic-trend model is selected for hypothesis testing. Results based on data of the first 15 years of the Ontario fluid milk campaign suggest advertising responses are dynamic. Estimated advertising elasticities decline more or less monotonically over this sample period, from a high of 0.020-o.031 in the initial 1973–74 theme period, to a low of 0.0004-0.009 in the final 1986–87 theme period. The apparent declining effectiveness of the Ontario fluid milk campaign is consistent with wearout theory, and suggests that program managers may want to reassess marketing strategies to identify possible ways to improve performance. Given the importance of advertising elasticities in normative decision models and the growing evidence of structural heterogeneity, models that permit parameters to change over time should provide an improved basis for program assessment and resource allocation.     

Open Economy and Processor Oligopoly Power Effects of Beef Advertising in Canada

A North American beef industry model incorporating a hypothesized relationship between beef advertising and processor oligopoly power was estimated and used to evaluate various advertising options faced by Canadian cattle producers. Generic and branded advertising significantly increased Canadian and U.S. beef demand. As well, historic generic beef advertising expenditure in Canada returned a net profit to Canadian producers. However, additional Canadian producer investment in generic beef advertising in Canada lowered producer profits, while investment in Canadian or U.S. brand advertis- ing or U.S. generic advertising generated positive net returns.
Nous avons construit un modèle mathématique pour le secteur nord-américain de la viande de boeuf, incorporant un rapport hypothétique entre la publicité du produit et le pouvoir oligopolistique au niveau du secteur de la préparation-transformation. Nous avons utilisé le modéle pour évaluer diverses options de publicité auxquelles font face les producteurs de bavins canadiens. La publicité générique et la publicité de marque ont procuré un accroissement de la demande de viande bovine tant au Canada qu'aux États-Unis. De plus, les dépenses engagées au cours des années au chapitre de la publicité générique de la viande bovine au Canada ont valu aux producteurs canadiens un bénéfice net. En revanche tout accroissement des investissements consacrés à la publicité générique par ces producteurs s'est soldé par une baisse des profits à la production, alors qu'aux États-Unis il se révélait en général rentable. Par aileurs, l'intensification de la publicité de marque s'est montrée rentable dans les deux pays.     

The Generic Advertising Controversy: How Did We Get Here and Where Are We Going?

Since the 1980s, generic advertising programs for dozens of farm commodities have been entangled in a great deal of litigation. The author looks at the history of generic advertising policies, discusses why the litigation arose when it did, and argues that the current round of litigation is simply an inevitable outgrowth of fairly recent Supreme Court rulings on commercial speech. The author further examines some of the economic studies that have been performed. The author predicts an increase in generic advertising litigation based upon the degree of collectivization in an industry and urges economists to bring the controversy into their modeling.     

食品安全丑闻报道与产销价格传导——基于中国猪肉市场的经验研究

本文利用主流媒体对猪肉质量安全事件的新闻报道构造食品安全丑闻报道指数,首次从媒体报道视角分析食品安全丑闻对中国猪肉供应链产销价格传导的影响。平滑转换误差修正模型检验结果表明:(1)食品安全丑闻报道是决定产销价格传导关系的门槛变量,当食品安全丑闻报道指数处于门槛值以内时,产销价格传导表现为线性关系,超出门槛值以后,则表现为非线性关系,但更多时候表现为非线性关系;(2)食品安全丑闻报道对产销价格具有非对称冲击效应,生猪价格比猪肉价格对冲击的反应程度更大、持续时间更长。这种非对称冲击效应不仅会打破产销价格波动的固有规律,也会加剧供应链上福利分配不均衡,处于弱势地位的养殖户更容易遭受福利损失。进一步采用向量自回归模型进行脉冲响应分析,结果仍然支持上述结论。     

Advertising Expenditures and the Consumption of Alcoholic Beverages

The theory of consumer behavior is applied to the estimation of a demand svstem. Monthly data on alcoholic beverages (beer, wine, liquor, soft dhnks) from the province of Ontario in Canada are analyzed. Before estimating the linear approximate almost ideal demand system (LA/AIDS), unit root and cointegration tests are implemented. Budget shares, per capita advertising expenditures, real total expenditure, prices and per capita consumption are found to be non-stationary. The budget share, the advertising expenditures, the prices and the real total expenditure are cointegrated for each beverage. Own and cross-price elasticities, income elasticities and own and cross-advertising elasticities are calculated from the estimated or the demand system. Based on own-price elasticities and income elasticities, alcohol consumption is consistent with the law of demand and the products analyzed are normal goods. The estimation of income and advertising effects is important for analyzing the need for, and the effectiveness of, potential control policies. The advertising elasticities are small but statistically significant. This suggests that advertising may promote alcoholic beverage consumption. The estimated inelastic demands for beer and wine suggest that the primary purpose of high excise taxes levied by the Federal and Provincial governments is to raise government revenues and not to discourage consumption.     

Decompositions of corn price effects: implications for feed grain demand and livestock supply

This article examines how corn prices affect the demand for feed grains and the supply of livestock outputs. The differential approach to the theory of the multiproduct firm is employed to examine ex ante decisions about feed grain demand and livestock supply. The estimation results suggest that livestock producers have little flexibility in adjusting the demand for corn in response to an increase in corn prices. The substitutable relationship between corn and distillers’ grains contributes to alleviating pressures on feed costs in response to high corn prices. In addition, the estimation results highlight that the composition of livestock supply can be altered by changes in livestock prices. On the basis of the estimated elasticities, the decompositions of profit‐maximizing input demand are conducted to examine the effects of changes in corn prices on feed grain demand and livestock supply. The decomposition results reveal that an increase in corn prices reduces corn demand but raises the demand for distillers’ grains mainly due to the substitution effects of corn price changes. The decomposition results also show that an increase in the price of corn reduces cattle supply but raises the supply of chicken and pork due to the output relationships in supply.     

AN EMPIRICAL ANALYSIS OF THE RELATIONSHIP BETWEEN ADVERTISING AND SALES: A CASE STUDY OF THE LIQUID MILK MARKET

The conventional econometric treatment of the possible dynamic relationship between two variables such as sales and advertising involves ad hoc assumptions concerning causality and lag structure. This paper focuses attention on a technique which tries to detect an empirical relationship between the advertising and sales of liquid milk. Our conclusions suggest that, at least in the market examined, the effectiveness of advertising in increasing sales appears to be limited.     

Expenditure on different categories of meat in Greece: the influence of changing tastes

This paper employs a latent variable approach to isolate the effects of changing tastes on the share of total meat expenditure on different categories of meat products in Greece during the period 1965–1995. We find that changes in the relative expenditure on different categories of meat cannot be explained by changes in the relative prices of the different meat products and increased expenditure alone. For pork products in particular, the increase in the share of expenditure has been greater than would be expected as a result of the relative fall in their price. The increase can therefore be associated with changes in taste. This finding is of general interest to those conducting empirical research into consumer behaviour both in economies where there have been significant changes in patterns of food consumption, and where, as in the case of many less industrialised economies, rapid structural changes in food consumption patterns are still to come. It is also of importance to policy makers in assessing die effectiveness of advertising or promotional campaigns in influencing longer term changes in consumer preferences for different products.     

Food scares, advertising, and the demand for meat cuts in Great Britain

Retail demand systems for 19 different cuts of meat for beef, lamb, pork, bacon and poultry in Great Britain are estimated from monthly time series of consumer expenditure from 1989-2000 using a two stage budget allocation process and an LA/AIDS specification. The unconditional expenditure, own and cross price elasticities are derived for the individual meat cuts. The impact of adverse publicity from meat scares, especially BSE, and of positive publicity through consumer promotion and advertising are incorporated into the modelling. Meat scares produced a reallocation of consumer spending from red to white meats during the 1990s. The impact of species-based advertising was shown to have complex spillover effects both within and between meat species, and the response of consumer demand to advertising was considerably less than to adverse publicity.