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Middlemen behaviour and generic advertising rents in competitive interrelated industries[Note 1. Appreciation is expressed to Hui Xiao for checking the ...]
Author(s) -
Kinnucan Henry W.
Publication year - 1997
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.00010
Subject(s) - economic rent , price elasticity of demand , economics , microeconomics , elasticity (physics) , elasticity of substitution , substitution effect , consumer demand , substitution (logic) , advertising , business , production (economics) , materials science , computer science , programming language , composite material
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.