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The measurement of marketing efficiency in the presence of spillovers: theory and evidence

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  • Michael Vardanyan

    (Department of Economics, Oregon State University, Corvallis, USA)

  • Victor J. Tremblay

    (Department of Economics, Oregon State University, Corvallis, USA)

Abstract

We develop a model of marketing efficiency based on a directional distance function that allows for marketing spillovers. A parametric model is used to test for spillovers from rival marketing and from a firm's marketing activity of its other related products. We then show how this information can be incorporated into a non-parametric model and used to estimate marketing inefficiency. We apply brand level data from the US brewing industry to the non-parametric model to determine the effectiveness of television, radio, and print advertising. We find that advertising spillovers are important in brewing and show that efficiency estimates are inaccurate when spillover effects are ignored. Our results also suggest that marketing efficiency may be an important component to firm success in brewing, a result that may apply to other consumer goods industries. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1262
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 5 ()
Pages: 319-331

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Handle: RePEc:wly:mgtdec:v:27:y:2006:i:5:p:319-331

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Boyd, Roy & Seldon, Barry J., 1990. "The fleeting effect of advertising : Empirical evidence from a case study," Economics Letters, Elsevier, vol. 34(4), pages 375-379, December.
  2. Fare, Rolf & Grosskopf, Shawna & Seldon, Barry J. & Tremblay, Victor J., 2004. "Advertising efficiency and the choice of media mix: a case of beer," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 503-522, April.
  3. Kneip, Alois & Park, Byeong U. & Simar, L opold, 1998. "A Note On The Convergence Of Nonparametric Dea Estimators For Production Efficiency Scores," Econometric Theory, Cambridge University Press, vol. 14(06), pages 783-793, December.
  4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  5. Seldon, Barry J. & Jewell, R. Todd & O'Brien, Daniel M., 2000. "Media substitution and economies of scale in advertising," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1153-1180, December.
  6. Stephen Farr & Carol Horton Tremblay & Victor Tremblay, 2001. "The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry," Review of Industrial Organization, Springer, vol. 18(2), pages 147-160, March.
  7. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
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Cited by:
  1. Duflos, Gautier & Lichtenberg, Frank R., 2012. "Does competition stimulate drug utilization? The impact of changes in market structure on US drug prices, marketing and utilization," International Review of Law and Economics, Elsevier, vol. 32(1), pages 95-109.
  2. Natsuko Iwasaki & Victor Tremblay, 2009. "The effect of marketing regulations on efficiency: LeChatelier versus coordination effects," Journal of Productivity Analysis, Springer, vol. 32(1), pages 41-54, August.

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