National Television and the Market for Local Products, Research Paper Example

A Statement of the Research Question

The main aim of the paper is to investigate the impacts of increased television advertisement on local breweries in comparison to non local breweries. Although the spread of television has helped spread the distribution of information and lowered the cost of advertising, it has also affected companies differently. George (2009) states that changes in the economics of media markets have been more beneficial to well-established companies like national breweries than local beer producers. These national brewers have managed to use innovations in information technology to appeal to customers at regional levels, making it difficult for local beer manufacturers to appeal to their target markets.

Statement of Motivation

The study is important to economists because it connects two critical areas of economic research. The paper investigates and provides findings on a long-standing debate on the role of advertising in industry structure. The paper also investigates the role of advertising in increasing consumer goods industries after the Second World War (George, 2009). The paper is further important because it provides an empirical test on how the economies of media markets can affect the industrial organizations of product markets (George, 2009). The paper is important to manufacturers because it helps them understand how advertising can affect their industry structure and how other companies have coped with these impacts. Consumers can also benefit from the paper since it provides insights into how advertising affects consuming or perceiving certain products.

Summary of Earlier Works

The paper has cited several studies investigating how television advertising affected local breweries and local brewery output. The debate on the impacts of advertising and technological innovation covers many different industries apart from beer manufacturing. A study by Peltzman established that decreased operational and advertising costs due to innovation are responsible for industry concentration. Such advancements are beneficial to consumers because they are presented with alternative products and services at fair prices (George, 2009). Peltzman further recorded concentration trends and cost reductions in 165 industries in the late 1970s. However, a study by Scherer challenged Peltzman’s findings that industry concentration increased due to decreasing costs by innovators. Scherer established that the largest increases in concentration were in consumer products characterized by extensive advertising (George, 2009). The debate on concentration causes in industries like beer manufacturing remains unresolved.

A Statement of Economic Theories Used

Several economic theories have been used in the research paper. Modern theory on advertising in industry concentration is one of the main approaches used to analyze the main research question. The modern theory can be traced to Sutton and Spencer. The theory challenged the dominant structure-conduct-performance paradigm, which depended on the assumption that external structural features of a market determine industry concentration and other performance measures (George, 2009). Sutton supported the theory by conducting several industry analyses that confirmed that effective advertising might lead to concentrated markets. Concentrated markets might affect smaller regional companies, especially in the beer industry. Although the modern theory developed by Sutton provided a stronger theoretical foundation for the impacts of advertising in concentration in the brewing industry, it failed to take a stand on the issue (George, 2009). Sutton’s theory asserted that a reduction in advertising cost and a change in minimum efficiency scale could push the industry to an advertising equilibrium from a no-advertising balance (George, 2009). Therefore, the theory failed to offer solutions to the challenges facing small and regional beer brewers.

Description of the Data

The study uses two main sets of data to investigate the effect of television advertising in the brewing industry. The first set of data used by the study is a market level panel of the number and share of local and national brewers together with television penetration rates from 1945 to 1960 (George, 2009). The second type of data used by the study is a combination of television penetration at the market level from 1950 to 1960 and a firm-level panel of locally produced beer (George, 2009). Television penetration rate is determined by the number of people within a market that can access a television broadcast signal. Brewery data in the United States was retrieved from American Breweries II, which the Eastern Coast Brewers Association published. The beer production data was retrieved from the 100 largest brewers from 1950 to 2001 (George, 2009). Robert S. Weinberg originally compiled the data during the R.S. Weinberg and Associates Brewery Industry Research Program.

Description of the Empirical Strategy

The study mainly used the data to determine the impacts of television penetration on local and non local breweries. The empirical analysis starts with a graphical representation of how local breweries have declined in markets with pre-war, pre-freeze, and post freeze television (George, 2009). The empirical analysis then continues by investigating the effects of television advertisements on local and non-local breweries and the local brewery share.

Results

The results indicate that the spread of television advertising negatively affected local breweries and positively impacted non-local breweries. Since non-local breweries have distribution networks in many different parts of the country, they benefited from increased television advertising as they could effectively target customers from different regions (George, 2009). Television advertising made non-local brands more visible than local brands contributing to their growth. The results indicate how television advertising can significantly impact different industries and companies. Companies must analyze their market position to identify how to use advertising effectively. The analysis further established that non-local breweries that relied heavily on television advertising incurred high advertisement costs with little returns because they appealed to markets where they could not provide services.

Implications

The results have different implications for industries and media innovations. Although advances in information technology have generally lowered the cost of advertising or distributing information over a large area, they may adversely affect local industries or companies. The lower costs of advertising due to innovations in information technology further aid the growth of national over local brands (George, 2009). As the world witnesses increased internet penetration rates, large international brands are more likely to identify and exploit new marketing opportunities than local and national brands. The internet also offers opportunities for companies to target individuals with particular tastes and preferences. The results could be more targeted to consumer products. Therefore, growth in information technology could play a critical role in the mass customization and industry concentration in markets for consumer products (George, 2009). Local brands should also take advantage of the internet and other digital technologies to effectively implement targeted marketing strategies to compete with non-local brands. Through the study, non local brands realize how improvements in advertisements have benefited them over the years. They can therefore implement measures that will help them capitalize on the opportunities presented by increased advertising.

References

George, M. L. (2009). National television and the market for local products: The case of Beer. The journal of Industrial Economics, 57 (1), 85-111.