Date of Completion

4-30-2013

Embargo Period

10-26-2013

Keywords

Economics, Social Sciences, Industrial Organization, Nested Logit, Confectionery Industry, Firm Structure

Major Advisor

Richard N. Langlois

Associate Advisor

Ronald W. Cotterill

Associate Advisor

Rui Huang

Field of Study

Agricultural and Resource Economics

Degree

Doctor of Philosophy

Open Access

Campus Access

Abstract

This dissertation is a case study of the U.S. confectionery industry. In the first essay, I use an institutional approach to determine the changing structure of the American confectionery industry. I provide the historical context of how the industry has evolved to the current state dominated by two big firms, and how Hershey and Mars achieve current dominant positions.

I argue that Hershey adopted the industrial-foundation organizational form based on the donor-agency theory which assures donors that their donations are not redistributed as profits to residual claimants. I further argue that the non-distribution constraint in the Hershey Trust Company prevents dividends (donations) from being redistributed to residual claimants, and that the non-distribution constraint makes more sense for Hershey because its founder, Milton Hershey, expressed his preference to leave a long lasting legacy.

I likewise review the empirical evidence on the performance of family-owned firms vis-à-vis that of non-family owned firms. I argue that Mars has chosen a family-controlled organizational form based on the competitive advantage theory which postulates that firm value is maximized when families retain control, benefitting both family and nonfamily shareholders. The Mars family’s greater commitment to the company, its long-term investment horizon, and the amenity potential associated with a traditional family name are consistent with the theory and made Mars more successful than most other family firms.

The second essay analyzes the effect of TV advertising and in-store displays on the sales of chocolates. I examine which method is more effective in gaining customers and in increasing total sales. Also, I look at the evidence to see whether the lack of advertising by a firm will hurt the industry as a whole. In this essay, I use a nested logit model on scanner data obtained by the Zwick Center for Food and Resource Policy at the University of Connecticut’s Department of Agricultural and Resource Economics to examine the effect of TV advertising on chocolate sales.

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