Optimal Commodity Promotion when Downstream Markets are Imperfectly Competitive

Mingxia Zhang and Richard J. Sexton

American Journal of Agricultural Economics, 2002, vol. 84, issue 2, 352-365

Abstract: We investigate the optimal collection and expenditure of funds for agricultural commodity promotion in markets where the processing and distribution sectors may exhibit oligopoly and/or oligopsony power. The conditions that characterize optimal advertising intensity under perfect competition for funds generated from either per-unit or lump-sum taxes do not, in general, hold when marketing is imperfectly competitive. Simulation analyses show that imperfect competition always reduces farmers' optimal advertising expenditure and that an imperfectly competitive marketing sector may capture half or more of the benefits from the funds that are expended. Copyright 2002, Oxford University Press.

Date: 2002
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