Essays on strategic behavior in supermodular settings : lobbying, advertising and price Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/4x51hm20f

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  • This dissertation addresses issues of strategic behavior of firms in lobbying, brand and generic advertising, and advertising-price relationships in imperfectly competitive markets. In the first study, we investigate conditions under which lobbying can improve social welfare and show that this type of lobbying will be undersupplied from society’s perspective. We take a case for lobbying which reduces an excise tax to achieve this purpose. In the second study, we examine the effect of generic advertising on a firm’s brand advertising and profits. Some producers argue that generic advertising is harmful because it will reduce perceived product differentiation and thus will make differentiated products look similar to consumers. Using duopoly models of vertical and horizontal product differentiation, we argue that this argument is not necessarily correct. Also, we model the relationship between generic advertising and brand advertising in markets with n firms regardless of the type of product differentiation via supermodular game (Milgrom and Roberts (1990)). In the third study, we scrutinize conditions under which there is a positive relationship between advertising and price. Theoretical work demonstrates that the welfare effect of advertising in imperfectly competitive markets depends upon the relationship between advertising and price. Applying the result of Milgrom and Roberts, we show that supermodularity is a condition under which advertising raise price. However, we show with models of vertical and horizontal product differentiation that this is a sufficient but not necessary condition. To address this issue empirically, we estimate a reduced form price equation using firm level data in the U.S. brewing industry. Our empirical results show that advertising raises price and is oversupplied in the U.S. brewing.
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