On generic vs. brand promotion of farm products in foreign markets

Farm groups and their governments spend millions of dollars each year advertising agricultural products in international markets. Intuitively, country-of-origin or ‘brand’ advertising should be more profitable than generic advertising in that it enhances product differentiation and reduces free riding. However, unlike generic advertising, brand advertising decreases the demand for competing imports and lowers their prices when supplies are upward sloping. In addition to inviting retaliation, the decline in the prices of competing products erodes the price of the advertised product through second-round or ‘market feedback’ effects. In this study, we develop a generalized model for assessing the relative effectiveness of generic and brand promotion in the international market when products are differentiated by source origin and supplies are uncontrolled. Applying the model to US beef promotion in Japan, we find that when brand and generic advertising are equally efficient in the sense that they cause equivalent horizontal shifts in the group and product-specific demand curves, generic advertising is indeed more profitable for most of the relevant parameter space. Distributional analysis suggests that, with equal export supply elasticities, the gross benefits of generic advertising are distributed across exporters in proportion to the expenditure elasticities for the products in question.