The problem of free riding in voluntary generic advertising: parallelism and possible solutions from the lab.

It also appears that the version of the PPM we tested can yield far greater levels of contributions than the VCM for generic advertising in repeated settings, which is consistent with prior research. In the case of generic commodity advertising, the advantages of a PPM are twofold. First, it is voluntary and therefore avoids the legal challenges that mandatory programs currently face in U.S. courts. Second, the PPM in this setting has the potential for a high level of success since the 70% participation threshold was met more than 90% of the time. If parallelism holds, such programs are likely to be highly successful and popular since higher levels of funding for generic advertising can lead to higher demand, prices, and profits for producers.

[Received October 29, 2006; accepted August 17, 2007.]

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(1) Another example of the social importance of generic advertising is in relation to generic drugs, which now receive little or no advertising. Insurance companies have faced stiff resistance to their efforts to get consumers to switch to generic drugs given the large-scale advertising programs for name-brand drugs. The Blue Cross and Blue Shield Association argue that the failure to advertise generic drugs at comparable levels results in the average name-brand drug costing consumers about three times the equivalent generic--a significant social cost, especially since generic drugs provide the same levels of health benefits.

(2) Experiment instructions can be found in Messer, Kaiser, and Schulze (2007).

(3) The cost, assessment, and price parameters used in the experiment and the assumption that producers did not incur costs if their units were not sold were not designed to mimic every aspect of the egg market but instead sought to contextualize the producer's decision regarding whether to contribute to voluntary generic advertising programs.

(4) While initial demand is stochastic, the change in demand due to advertising is deterministic based on contributions.

(5) Previous research has shown that, in a PPM with refunds, a threshold of near 70% yields a good balance between high contributions and a high rate of achieving the threshold (for example, see Dawes et al. 1986).

(6) Since experimental design III in table 1 had two treatments instead of four, each experimental session lasted approximately one hour instead of the two hours required for all four treatments. Thus, the expected hourly earnings for all experimental designs were equivalent.

Kent D. Messer is assistant professor, Departments of Food and Resource Economics and Economics at the University of Delaware. Harry M. Kaiser is professor, Department of Applied Economics and Management at Cornell University. William D. Schulze is professor, Department of Applied Economics and Management, Cornell University.

The authors thank Richard Sexton and Henry Kinnucan for their helpful comments. Support for this research has come from the Decision, Risk, and Management Science Program at the National Science Foundation and from the National Institute for Commodity Promotion Research and Evaluation. Any remaining errors are the authors'. Table 1. Experimental Designs and Research Questions, Number of Subjects

First Second

Treatment Treatment Experimental No VCM VCM Designs Program Refund Contribution I. Baseline 80 80 II. VCM versus 40 40

PPM III. Status Quo Bias 40 40

and the VCM IV. Status Quo Bias 40 40

and the PPM Total 200 160 40

Third Fourth

Treatment Treatment Experimental Mandatory PPM PPM VCM Designs Program Refund Contribution Refund I. Baseline 80 80 II. VCM versus 40 40

PPM III. Status Quo Bias

and the VCM IV. Status Quo Bias 40 40

and the PPM Total 160 80 40 40

First Second Third

Treatment Treatment Treatment Research No VCM VCM Mandatory Designs Program Refund Contribution Program #1. Parallelism 160 #2. VCM versus