I develop a dynamic model of consumption variety in status goods by introducing a realistic aspect that is new in the existing literature—that a good will not carry status appeal unless it is advertised. As advertisements will divert resources from new product research, growth in new products will be reduced. However, status-good advertisements also enhance distinctiveness of a good and increase a firm’s profit. This will motivate more researches. With the two effects offsetting each other, the original market bias in a standard product-development model—insufficient research due to a general knowledge spillover—cannot be overcome. While introducing advertising into models of this kind does not reverse the original welfare implication of suboptimal growth, this makes available a new and better intervention option—taxing advertisements. This tax is superior to consumption tax, the conventional solution to inefficient status competition, as consumption tax is found to be ineffective in the present model. It is also superior to research subsidies, the conventional solution to suboptimal growth, as subsidies must be financed and is not a self-sufficient policy.

The dependent variable in the Rotterdam model is shown to consist of two additive components: the proportionate change in the average product weight consumed by existing buyers and the proportionate change in the share of total consumers who actually purchase the product. Applying the extended model to household data on salmon consumption in France, results suggest prices have a larger effect on attracting new buyers to the product in question than on getting existing buyers to consume more. However, generic advertising was found to affect consumption intensity but have no effect on market participation in the short run.

We examine the relationship of product characteristics of ready-to-eat breakfast cereal and targeted television advertising to specific consumer segments. We compile a unique data set that includes brand-packaging characteristics, including on-box games, nutrition information, and cobranding. We find that the relationship of television advertising and a cereal's brand-packaging characteristics varies by target audience. Our results provide insight into understanding how manufacturers strategically utilize branding, packaging, and television advertising. This can help industry and policy makers develop food product advertising policy. This analysis extends to other product markets where extensive product differentiation and promotion are present as well.

Considerable evidence exists of high returns to public and private investment in commodity research and development programs. This study investigates the potential returns to product research, development, and marketing in a dynamic commodity-market model. Theoretical hypotheses derived from the solution to this model are tested in an empirical example of Washington apples. Estimation results show that, despite significant spillovers to research and promotion expenditure in this industry, there is nonetheless considerable latitude to increase annual sales.

As a result of several judicial rulings, processing of horses for human consumption came to a halt in 2007. This article determines the change in horse prices resulting from elimination of horse-processing facilities. As expected, lower-valued horses were more affected by the ban than higher-valued horses. The analysis suggests the slaughter ban reduced horse prices, on average, by about 13% and resulted in a loss in producer surplus to sellers of approximately 14% at the sale we analyzed. We also show horse prices are affected by a myriad of factors including breed, gender, age, coat color, and sale catalog description.

We propose a regime-switching model that allows demand to respond asymmetrically to upward and downward advertising changes. With the introduction of a smooth transition function, the model features smooth rather than abrupt parameter changes between regimes. We apply the model to nonalcoholic beverage data in the United States for 1974 through 2005 to investigate asymmetric advertising response. Results indicate that a decrease in milk advertising had a more profound impact on milk demand than an increase did. An increase in milk advertising had no impact on milk demand, but a decrease could have an own-advertising elasticity up to 0.049.

In this paper we consider a two-stage duopoly game where firms first decide whether to invest in advertising and then compete in prices. Advertising has two effects: a market enlargement for both firms and a predatory gain for the investing firm only.

Both symmetric and asymmetric equilibria may arise. The two most interesting cases are a coordination game where both firms investing and non-investing are equilibria, and a chicken game where only one firm invests while the other is possibly driven (endogenously) out of the market. Our results suggest that product differentiation has an ambiguous impact on investment in advertising and that strong product substitutabihty may induce a coordination problem.