OPTIMAL ADVERTISING WITH TRADED RAW AND FINAL GOODS: THE CASE OF VARIABLE PROPORTIONS TECHNOLOGY
By: Cranfield, John A.L.
Cranfield, John A.L., OPTIMAL ADVERTISING WITH TRADED RAW AND FINAL GOODS: THE CASE OF VARIABLE PROPORTIONS TECHNOLOGY, Journal of Agricultural and Resource Economics, Volume 27, Issue 1, July 2002, Pages 204-221
An optimal advertising investment rule is derived for a vertically related, competitive market with traded final and raw goods and processing sector characterized by variable proportions technology and nonconstant returns to scale. An equilibrium displacement framework incorporating conditional factor demands is used to account for the elasticity of substitution between agricultural and nonagricultural inputs to the marketing channel. Simulation for the Canadian beef industry in the post-WTO environment demonstrates how optimal advertising intensity ranges between 0.05% and 0.22% of farm-level market revenue.