Measuring the Accountability of Advertising Expenses in the Presence of Sales Cost Inefficiency and Marketing Spillovers
AbstractThis paper develops a tractable theoretical framework for analyzing the substitutability between different advertising media, the extent of marketing spillovers in the market, the allocative efficiency of advertising spending, and the sources of total advertising productivity and sales growth. Maintaining the separability assumption between sales and production technology, the proposed methodology relies on cost-function decomposition of total factor productivity and the duality between input distance and cost functions. Utilizing a flexible Translog advertising distance function, the methodology is applied to the advertising activity of meat processing firms in Greece during the period 1983-1997. Scale economies in advertising expenses turn out to be an important source of total advertising productivity changes in the Greek meat processing sector. Advertising spillovers are significant contributing to total advertising productivity observed. Our analysis also indicates that improvements in (technical and allocative) advertising efficiency are more important means of enhancing firm returns than improvements in advertising techniques.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 0721.
Length: 45 pages
Date of creation: 29 May 2007
Date of revision:
Advertising productivity; advertising direct distance function; media substitutability; processed meats industry; Greece;
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-EFF-2007-06-11 (Efficiency & Productivity)
- NEP-MKT-2007-06-11 (Marketing)
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