Evaluating Generic Milk Promotion Effectiveness with an Imperfect Competition Model

Abstract

Although raw milk is essentially a homogeneous input in the production of fluid milk and manufactured dairy products, in many countries the price received for fluid milk usage is higher than the price received for manufactured product usage. Such differences indicate that prices are not competitively determined. This certainly is the case in the United States, where federal and state milk marketing order programs establish minimum Class I price differentials (premiums) for most milk marketed. There are also over-order fluid premium payments resulting from negotiations between cooperatives and fluid processors.Changes in milk advertising expenditures should produce changes in milk prices as well as in milk demand. Thus, an advertising program's effectiveness should account for changes in both price and quantity; each should be treated as endogenous. Most studies of U.S. dairy markets either assume an exogenous fluid milk price (Thompson, Eiler, and Forker; Liu A framework is proposed for incorporating the degree of market competition in evaluating milk promotion effectiveness. The imperfect competition model allows simultaneity in price and quantity with an endogenous fluid milk premium. The model's usefulness is demonstrated with Japanese generic milk promotion data. Results show a conventional exogenous-price or exogenous-premium model will underestimate returns to milk promotion.

An Evaluation of California's Mandated Commodity Promotion Programs

“…In addition, in some markets government policies apply and have implications for the analysis of check-off-funded promotion (e.g., McCutcheon and Goddard; Goddard and McCutcheon; and Alston, Carman, and Chalfant). In some cases, models can be designed to take into account other market distortions, such as the effects of agribusiness firms exercising market power (Suzuki et al;Zhang and Sexton;Kinnucan 2003). These complications notwithstanding, the essential story and conceptual apparatus remain as outlined in figures 1 and 2.…”

Generic advertising without supply control: implications of funding mechanisms for advertising intensities in competitive industries

“…For example, in Australia prior to 1993^94, producer wool promotion levies were matched dollar for dollar, and in Japan governments contribute to the generic advertising of £uid milk (Suzuki et al 1994) This kind of government subsidy could be speci¢ed as a lump sum, or as a per unit or ad valorem rate. Here, we consider an alternative case where the government provides a matching grant in proportion to the amount raised by a per unit levy, raising the advertising budget from A T Q to A 1 xT M Q where x is the proportion of the budget provided by the government, and the superscript M denotes that this levy rate will di¡er from the one derived in the absence of the matching funds.…”

“…Also, levy funding of advertising and government subsidy funding can be added to the model. Similar extensions can be used to incorporate elements of market power behaviour, for example as modelled in Goddard and McCutcheon (1993), Suzuki et al (1994), and Zhang and Sexton (2000).…”

Profitability of incremental generic promotion of Australian dairy products

“…While there is some doubt surrounding the demand relationship between milk and fruit juice, and milk and soft drink (see, e.g., Thompson and Eiler, 1975;Thompson, 1979;Kullman, 1983;Kinnucan, 1987;Milham et al, 1990;Suzuki et al, 1994), these products are considered to be substitutes in this study and, therefore, are included in the domestic demand equation for raw milk. In the model developed here, the impact of changes in own-and cross-commodity generic promotion expenditure are assessed using derived competitive price and quantity outcomes for raw milk and, hence, inclusion of the price of fruit juice and the price of soft drink seems reasonable.…”