MIDDLEMEN BEHAVIOR AND GENERIC ADVERTISING RENTS IN COMPETITIVE INTERRELATED INDUSTRIES

This article focuses on the role of middlemen in determining the retur ns to generic advertising in a competitive industry where supply is un controlled, the price of marketing inputs is endogenous, and retail ma rkets are interrelated through consumer preferences. Theoretical analy sis suggests farm-gate returns (quasi-rents) are overstated when input substitution at middlemen level is ignored, a result confirmed in the empirical application. As for mark-up behaviour, represented by the f arm-retail price transmission elasticity, a general result is that far m-gate returns to generic advertising always increase as the transmiss ion elasticity decreases, provided retail demand is more elastic than input substitution. Endogenising the price of marketing inputs has lit tle effect on advertising rents.