Advertising, Collective Action, And Labeling In The European Wine Markets
In this paper we consider the role for collective action in advertising investments needed to compete on foreign markets and/or to enter into new markets. We model the choices facing producers in regions where both AO (high quality) and table (low quality) wines are produced. By joining forces with producers of other regions to invest in advertising, producers may penetrate into new markets. We show that it is profitable to enter into the new markets when, other things being equal, the size of the new market is relatively big, when the traditional market is relatively small, and when the size of the fixed investment in advertising is relatively small. We discuss the policy implications of the results, examining possible modifications of the AO system to facilitate collective action and improve investment levels.
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