Middlemen behaviour and generic advertising rents in competitive interrelated industries
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This article focuses on the role of middlemen in determining the returns to generic
advertising in a competitive industry where supply is uncontrolled, the price of
marketing inputs is endogenous, and retail markets are interrelated through
consumer preferences. Theoretical analysis suggests farm-gate returns (quasi-rents)
are overstated when input substitution at middlemen level is ignored, a result
confrmed in the empirical application. As for mark-up behaviour, represented by
the farm-retail price transmission elasticity, a general result is that farm-gate
returns to generic advertising always increase as the transmission elasticity
decreases, provided retail demand is more elastic than input substitution.
Endogenising the price of marketing inputs has little effect on advertising rents.