ECONOMISTS classify advertising into two broad types: informational advertising and image advertising.
Classified ads, yellow pages and search engine ads are examples of the first category; they provide specific information about products and services.
These are quite different from ads for, say, soft drinks. Such ads do not typically offer new information. Instead, they seek to convey a positive image of a product by associating it with attractive people who seem to be having a lot of fun. If you drink the right brand of soda or beer, maybe you'll have fun, too.
There is a third, lesser known type of ad called commodity advertising. These ads focus on generic products like agricultural commodities. Well-known examples are the "California Raisins," "Got Milk?" and "Real California Cheese" campaigns.
Four agricultural economists — Harry M. Kaiser, Julian M. Alston, John M. Crespi and Richard J. Sexton — have studied these efforts in detail and outline how they work in the book "The Economics of Commodity Promotion Programs" (Peter Lang Publishing, 2005). There are two interesting features of commodity advertising programs: first, they are unreasonably effective, and second, they are unreasonably difficult to maintain.
On the first point, the economists calculate that each dollar spent on advertising agricultural products like eggs, milk, beef, prunes and almonds yields $3 to $6 of additional revenue to producers.
The "California Raisins" campaign was credited with increasing raisin sales 10 percent in the 1980's. According to the California Raisin Board, before the ad campaign, raisins were "at best dull and boring." After the campaign, people were no longer "ashamed to eat raisins." Well, maybe so.
In any event, there are now over 60 active commodity marketing programs in California alone, involving spending of about $1 billion a year.
But despite their success, the programs can be difficult to maintain. The problem lies in aligning incentives. The producer of a branded product pays all the costs and reaps all the benefits of its advertising spending, leading it to a carefully considered decision about how much to spend.
By contrast, the benefits and costs of commodity advertising are spread unequally among many producers, making it tough to reach a collective decision about marketing levels.
A California almond producer benefits from almond marketing efforts whether or not the producer contributes to them. So it is tempting to take a free ride on the payments of others.
Mandatory programs provide one solution to this problem. Growers vote about whether to start a marketing program and, if the vote succeeds, all growers are required to participate.
Not surprisingly, the growers who receive few benefits from the programs do not want to be forced to contribute.
In early 1980's one almond grower, Saulsbury Orchards and Almond Processing, consistently sold most of its crop to a breakfast cereal maker. As part of the deal, Saulsbury helped to finance advertising for the cereal company. When it asked for reimbursement for these marketing costs, the Almond Board refused to pay, arguing that almonds were only a small part of the good being advertised.
Saulsbury Orchards sued the almond marketing board and, in 1993, the case ended up in the United States Court of Appeals for the Ninth Circuit, which found that mandatory advertising violated Saulsbury's First Amendment rights of free speech and association.
After that decision, dozens of challenges to mandated marketing programs arose in the 1990's. Apples, peaches, plums, grapes, kiwi — a veritable cornucopia of producers challenged the programs, with several cases going to district courts and some reaching the Supreme Court.
In 2004, federal appeals courts ruled that three highly successful programs — for beef, pork and milk — were unconstitutional. But in 2005, the Supreme Court ruled 6-to-3 that beef marketing programs did not violate the First Amendment, as they were considered protected "government speech."
Despite this ruling, there are still over 70 cases being litigated; the outcomes will probably depend on specific details of the marketing programs. But it now seems likely that commodity marketing programs will continue to exist in some form or other.
Professor Kaiser, Kent D. Messer, and William D. Schulze, economists at Cornell, argue that this is a good thing since commodity marketing is often beneficial to consumers.
Consider the snack industry. From 1970 to 2001, per capita soda consumption more than doubled, while milk consumption fell by more than two-thirds. Surely, a few million dollars to promote milk consumption can not be bad, given the billions spent by the soft drink industry. Compare a soda and a candy bar with a carton of milk and a handful of raisins: which would you rather your child chose as a snack?
Or look at the pharmaceutical industry. Drug companies spend billions to advertise their branded products while virtually nothing is spent to market generic drugs. The health insurer Blue Cross and Blue Shield says that this is part of the reason brand drugs cost three times what equivalent generics do.
It can be tricky to structure commodity marketing programs so that they overcome the free rider problem. But if this can be done, such programs may offer substantial benefits to both producers and consumers.