Optimal Generic Advertising under Bilateral Imperfect Competition between Processors and Retailers

The purpose of this paper is to examine the impact of bilateral imperfect competition between processors and retailers and of import supply on optimal advertising intensity, advertising expenditures, and checkoff assessment rates. First, comparative static analyses were conducted on the newly developed optimal advertising intensity formula. Second, to consider the endogenous nature of optimal advertising, a linear market equilibrium model was developed and applied to the U.S. beef industry. Results showed that the full consideration of retailer-processor bilateral market power lowered the optimal values of assessment rates, advertising expenditures, and advertising intensity for the checkoff board whereas consideration of importers increases the optimal values. The results indicate that ignoring the import sector in optimal generic advertising modeling should underestimate these optimal values, whereas ignoring the bilateral market power between processors and retailers overestimates the values. [EconLit citations: L13, L66, M37]. (C) 2014 Wiley Periodicals, Inc.