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Modeling the demand for alcoholic beverages and advertising specifications

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  • Lariviere, Eric
  • Larue, Bruno
  • Chalfant, Jim
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    Abstract

    In this paper, the demand for beer, wine, spirits and soft drinks in Ontario is modeled in two parts: an equation is specified to endogenize group expenditures and a demand system is set up to allocate budgeted group expenditures across ,types of beverages. Advertising is allowed to influence both the level of group expenditures and its allocation. Three popular advertising specifications are compared using the ]-test and the likelihood dominance criterion. Even though all three specifications fitted well according to standard criteria, the calculated expenditure, price and advertising elasticities were sensitive to the manner with which advertising is specified. This clearly highlights the need to rely on a sound criterion to identify a dominant specification. From the identified dominant specification, we found that advertising has very subtle effects on expenditures on alcoholic beverages (group and individual beverages). Thus, advertising is not effective in enlarging markets and this suggests that firms (especially breweries) use advertising to compete in zero-sum market share games. From a public policy perspective, our results are comforting but future research should investigate whether the neutral effect of advertising on aggregated expenditures hide substantial offsetting changes in the drinking habits of individuals. © 2000 Elsevier Science B.V. All rights reserved.

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    Bibliographic Info

    Article provided by International Association of Agricultural Economists in its journal Agricultural Economics of Agricultural Economists.

    Volume (Year): 22 (2000)
    Issue (Month): 2 (March)
    Pages:

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    Handle: RePEc:ags:iaaeaj:175382

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    Keywords: Demand and Price Analysis; Production Economics;

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    Cited by:
    1. Evens SALIES, 2004. "The consumption of ordinary wines in France : the effect of administered prices," Econometrics 0406003, EconWPA.
    2. Tomson Ogwang & Danny Cho, 2009. "Economic determinants of the consumption of alcoholic beverages in Canada: a panel data analysis," Empirical Economics, Springer, vol. 37(3), pages 599-613, December.
    3. Dyack, Brenda & Goddard, Ellen W., 2001. "The Rise of Red and the Wane of White: Wine Demand in Ontario Canada," 2001 Conference (45th), January 23-25, 2001, Adelaide 125617, Australian Agricultural and Resource Economics Society.
    4. Nelson, Jon P., 2001. "Alcohol Advertising and Advertising Bans: A Survey of Research Methods, Results, and Policy Implications," Working Papers 7-01-2, Pennsylvania State University, Department of Economics.
    5. Chang, Hui-Shung (Christie) & Bettington, Nicholas, 2001. "Demand for Wine in Australia: Systems Versus Single Equation Approach," Working Papers 12923, University of New England, School of Economics.
    6. Cutts, Michela & Reynolds, Sanri & Meyer, Ferdinand H. & Vink, Nick, 2007. "Modelling Long-Term Commodities: The Development Of A Simulation Model For The South African Wine Industry Within A Partial Equilibrium Framework," Working Papers 37324, American Association of Wine Economists.
    7. Johan F.M.Swinnen & Liesbeth Colen, 2010. "Beer Drinking Nations. The Determinants of Global Beer Consumption," LICOS Discussion Papers 27010, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    8. Henry Saffer & Dhaval Dave, 2003. "Alcohol Advertising and Alcohol Consumption by Adolescents," NBER Working Papers 9676, National Bureau of Economic Research, Inc.
    9. Guy Chapda Nana & Bruno Larue, 2012. "Imposing Curvature Conditions on Flexible Functional Forms for GNP Functions," Cahiers de recherche CREATE 2012-5, CREATE.
    10. Yen, Steven T. & Yuan, Yan & Liu, Xiaowen, 2009. "Alcohol consumption by men in China: A non-Gaussian censored system approach," China Economic Review, Elsevier, vol. 20(2), pages 162-173, June.
    11. Angulo, Ana Maria & Gil, Jose Maria & Gracia, Azucena, 2001. "The demand for alcoholic beverages in Spain," Agricultural Economics, Blackwell, vol. 26(1), pages 71-83, October.
    12. Zheng, Yuqing & Kaiser, Harry M., 2008. "Advertising and U.S. Nonalcoholic Beverage Demand," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), October.
    13. Vicente Esteve & Francisco Requena, 2006. "A Cointegration Analysis of Car Advertising and Sales Data in the Presence of Structural Change," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 111-128.
    14. Silva, Andres & Dharmasena, Senarath, 2013. "Modeling Seasonal Unit Roots as a Simple Empirical Method to Handle Autocorrelation in Demand Systems: Evidence from UK Expenditure Data," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149928, Agricultural and Applied Economics Association.
    15. Antonis Michis & Anna Markidou, 2013. "Determinants of retail wine prices: evidence from Cyprus," Empirical Economics, Springer, vol. 45(1), pages 267-280, August.
    16. Panzone, Luca A., 2013. "Saving money vs investing money: Do energy ratings influence consumer demand for energy efficient goods?," Energy Economics, Elsevier, vol. 38(C), pages 51-63.

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