OPTIMAL PRODUCER AND SOCIAL PAYOFF FROM GENERIC ADVERTISING - THE CASE OF THE CANADIAN SUPPLY-MANAGED EGG SECTOR

The Canadian egg industry operates under a system of supply management where imports and production of eggs are restricted to ensure that producers achieve a price for their eggs that covers costs of production. Over the late 1970s and early 1980s, the egg industry in Canada has faced declining demand due in part to health and nutritional concerns about cholesterol. An active advertising campaign has been undertaken in Canada by the Canadian Egg Marketing Agency to address the problem of declining demand. More recently, in the 1980s, the national advertising campaign has been supplemented by a vigorous provincial advertising campaign in Ontario, the country's largest province in terms of population and egg production. The bulk of the advertising is funded through direct producer levy. However, the provincial government in Ontario contributes to the provincial advertising campaign. To investigate the implications of the advertising program, an econometric model of the Canadian egg sector is specified, estimated and simulated. Given the measured responses to advertising, optimal advertising expenditure rules (for a monopolist) are applied to the Canadian egg sector to evaluate the implications of moving from actual to optimal advertising expenditure for consumer and producer welfare. An optimal advertising behavioral rule for the government is also developed and applied to determine the difference between optimal producer investment in advertising and optimal social investment in advertising.