Generic Advertising in an Asymmetric Cournot Oligopoly

Yuqing Zheng, Talia Bar and Harry Kaiser

American Journal of Agricultural Economics, 2010, vol. 92, issue 3, 740-754

Abstract: We examine how benefits of mandated generic advertising vary with firm size in an asymmetric Cournot oligopoly market. Generic advertising, funded through a mandatory assessment, changes demand but also increases firms' costs. The effect on a firm's profits depends upon the nature of the change in demand and the company's market share. Situations are identified in which generic advertising: (1) disproportionately favors large (small) firms; (2) decreases profits; and (3) increases (decreases) social welfare. Our findings explain the concerns that are often raised on small firms being disadvantaged by generic advertising. We discuss implications for policy and for firms' advertising strategies. Copyright 2010, Oxford University Press.

Date: 2010
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