We examine how benefits of mandated generic advertising vary with firm size in an asymmetric Cournot oligopoly market. Generic advertising, funded through a mandatory assessment, changes demand but also increases firms' costs. The effect on a firm's profits depends upon the nature of the change in demand and the company's market share. Situations are identified in which generic advertising: (1) disproportionately favors large (small) firms; (2) decreases profits; and (3) increases (decreases) social welfare. Our findings explain the concerns that are often raised on small firms being disadvantaged by generic advertising.We discuss implications for policy and for firms' advertising strategies.
|Number of pages
|American Journal of Agricultural Economics
|Published - Apr 2010
Bibliographical noteFunding Information:
We introduce generic advertising to a standard asymmetric Cournot competition model. We focus on the prevalent funding mechanism— that generic advertising is funded by a unit assessment. We show (see online supplementary material) how the model can be modified to account for advertising funded by a value assessment where each firm’s contribution is proportional to its revenue. The individual firm’s profit effect from a value assessment is shown to be qualitatively indistinguishable from that of a unit assessment.
- Demand rotation
- Demand shift
- Firm size
- Generic advertising
ASJC Scopus subject areas
- Agricultural and Biological Sciences (miscellaneous)
- Economics and Econometrics