Thanks for the great information.
It does sound like an allergy condition, but let me explain how allergies and skin conditions work. A dog has an allergic reaction to something. This causes some itchiness and the dog bites or scratches the area. This damages the skin's immune system. This allows the staph or yeast that is present on most dogs to multiply unchecked by the immune system. This leads to a yeast or staph dermatitis. Now the bad part is that these skin conditions also cause a dog to scratch and chew so it ends up being a vicious cycle.
Given the area this is in, it is likely to be a flea allergy that is to blame. It only takes one bite to start the reaction going if they are allergic to fleas. So the flea may be jumping on in the yard, biting and then dies before your dog has enough to be seen. The preventative is a good one, so we need to concentrate on limiting your dog's exposure to them in the environment. You can treat the yard if you wish with food grade Diatomaceous earth, which helps kill them in the yard without poisons. This can also be used in carpets as well. You can read more about that here.
Fleas do not like a wet environment so frequent watering of the lawn can also make it inhospitable to fleas as well. This will help prevent the occasional bite. Now in addition to eliminating the allergen, you need to treat the skin dermatitis as well. Staph usually occurs on the lower regions of your pet and tends to have small pimple type bumps. Shampoo containing Chlorhexiderm and/or Oatmeal can help with this condition though it does not cure the allergy. Yeast typically shows as a greasy area that has a sweet musty odor. Sometimes the skin can become inflamed, darker and thickened due to itching. Yeast likes areas such as between toes, armpits and ears. Selsun Blue Shampoo can help with Yeast dermatitis. When shampooing, lather and leave on 15 minutes before rinsing. These shampoos are not meant to be a cure, just a relief until your pet can see a Vet.
Often a shot of prednisone will help relieve inflammation and itchiness enough to help the spot heal up. No I have had owners of dogs with flea allergies that mixed up their own salve to help stop the cycle. They treat the dermatitis and eliminate the allergen. Now what they also do is get a jar of Vaseline and add about a teaspoon of flea dip and mix it up well. They then use this on the area to protect it and keep any stray fleas from entering the area as well. Most of these clients see signs of hair regrowth as soon as a week later.
You might go ahead and see a different vet though. Let me give you a site on allergies.
Benadryl doesn't do much for the skin dermatitis but is helpful with the actual allergic reaction. The dosage is 1-2mg per pound every 8 hours.
I'd give these suggestions a try and see if you see some improvement . I hope this information is helpful to you. If you would like any additional information or have more questions please don’t hesitate to press the reply to expert or continue conversation button so I can address any issues you still have . If you do find this helpful, please take this opportunity to rate my answer positively so I am compensated for my time.