Analysis about the effects of generic promotion in the U.S. dairy market

Sounghun Kim, Purdue University

Abstract

This dissertation evaluates the economic effects of generic advertising for dairy products in a multi-market setting that allows for horizontal demand and supply linkages across dairy product markets. I develop an equilibrium displacement model that explicitly permits substitutability and complementarity across retail demand for dairy products, as well as horizontal supply linkages through the common use of the raw commodity, milk, in alternative dairy products. Comparative statics from the model show that returns to generic promotion and optimal advertising expenditure depend on these cross-market effects. Numerical simulation of the model shows that ignoring the cross-market effects of advertising leads to inaccurate measurement of the returns to advertising. This is a key result, given that the extant literature on dairy advertising focuses only on the vertical market relationships, without considering cross-market effects. Extensions of the model disaggregate milk into its underlying components, and also consider potential market power by marketing firms. The concepts and models developed in this dissertation are applicable to the economics of promotion in industries where a single commodity is allocated to multiple downstream markets. Examples include the allocation of a farm commodity in alternative processed markets, processed vs. fresh markets, or foreign vs. domestic markets. The dissertation also has implications for further empirical research on generic advertising.^

Degree

Ph.D.

Advisors

Joseph V. Balagtas, Purdue University.

Subject Area

Economics, Agricultural

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