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Regulation, Market Power, and Advertising Effectiveness

Published online by Cambridge University Press:  15 September 2016

Kevin Chen  and
Jeevika Weerahewa
Kevin Chen
Affiliation:
Department of Rural Economy at the University of Alberta
Jeevika Weerahewa
Affiliation:
Department of Agricultural Economics at the University of Peradeniya–Sri Lanka
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Abstract

Using the case of Canadian dairy industry, this paper investigates the farm level effectiveness of generic advertising in two vertically related markets under government regulation and oligopolistic power. Comparative static analysis indicates that an increase in advertising may either increase or decrease the farm level profit when the processing industry is oligopolistic. When advertising leads to an increase in the farm level profit under the oligopolistic processing industry, the size of this effect may be more than, less than, or the same as that under perfect competition. Specifications of the retail demand function play an important role in determining both the direction and magnitude of the effect of advertising on the farm level profit under the oligopolistic processing industry. The simulation results of the Canadian butter industry illustrate that the magnitude of the bias caused by an erroneous assumption regarding the market structure could be significant.

Type
Articles
Information
Agricultural and Resource Economics Review , Volume 27 , Issue 2 , October 1998 , pp. 209 - 217
Copyright
Copyright © 1998 Northeastern Agricultural and Resource Economics Association 

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