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Measuring the Effects of Generic Dairy Advertising in a Multi‐Market Equilibrium
Author(s) -
Balagtas Joseph V.,
Kim Sounghun
Publication year - 2007
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2007.01037.x
Subject(s) - commodity , product (mathematics) , economics , supply and demand , promotion (chess) , microeconomics , downstream (manufacturing) , commodity market , product market , business , industrial organization , marketing , market economy , geometry , mathematics , finance , incentive , politics , political science , law
We develop a multi‐market equilibrium displacement model that allows demand linkages across downstream product markets, and supply linkages through the common use of a raw commodity as the key input. Applying the model to the dairy sector, we find that the effectiveness of producer‐funded advertising depends on the demand relationships across dairy product markets (cross‐price and cross‐advertising elasticities) as well as the reallocation of milk toward the advertised market. We show that the previous literature, which ignores the horizontal linkages highlighted here, tends to overstate the effectiveness of generic commodity promotion for dairy, and thus results in too much advertising.