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An Empirical Assessment of Endogeneity Issues In Demand Analysis for Differentiated Products

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Author Info
Dhar, Tirtha P.
Chavas, Jean-Paul
Gould, Brian W.

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Abstract

This article explores the issue of price and expenditure endogeneity in empirical demand analysis. The analysis focuses on the US carbonated soft drink market. We test the null hypothesis that price and expenditures are exogenous in the demand for carbonated soft drinks. Using an Almost Ideal Demand System (AIDS) specification, we strongly reject exogeneity for both prices and expenditures. We find that accounting for price/expenditures endogeneity significantly impacts demand elasticity estimates. We also evaluate the implications of endogeneity issues for testing weak separability.

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Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25227.

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Date of creation: 2002
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Handle: RePEc:ags:uconnr:25227

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Keywords: endogeneity; separability; carbonated soft drinks; Almost Ideal Demand System; Demand and Price Analysis;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard Blundell & Jean-Marc Robin, 2000. "Latent Separability: Grouping Goods without Weak Separability," Econometrica, Econometric Society, vol. 68(1), pages 53-84, January.
    Other versions:
  2. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," Journal of Business, University of Chicago Press, vol. 73(1), pages 109-37, January. [Downloadable!] (restricted)
  3. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer. [Downloadable!] (restricted)
  4. Blackorby, C. & Davidson, R. & Schworm, W., 1990. "Implicit Separability: Characterisation And Implications For Consumer Demands," G.R.E.Q.A.M. 90a16, Universite Aix-Marseille III.
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  5. Kadiyali, Vrinda & Vilcassim, Naufel J & Chintagunta, Pradeep K, 1996. "Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?," Journal of Business, University of Chicago Press, vol. 69(4), pages 459-87, October. [Downloadable!] (restricted)
  6. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  7. Italianer, Alexander, 1985. "A small-sample correction for the likelihood ratio test," Economics Letters, Elsevier, vol. 19(4), pages 315-317. [Downloadable!] (restricted)
  8. Jerry A. Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annales d'Economie et de Statistique, ADRES, issue 34, pages 07, Avril-Jui. [Downloadable!]
  9. Pudney, Stephen E, 1981. "An Empirical Method of Approximating the Separable Structure of Consumer Preferences," Review of Economic Studies, Blackwell Publishing, vol. 48(4), pages 561-77, October. [Downloadable!] (restricted)
  10. Cotterill, Ronald W. & Franklin, Andrew W. & Ma, Li Yu, 1996. "Measuring Market Power Effects in Differentiated Product Industries: An Application to the Soft Drink Industry," Research Reports 25229, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
  11. Moschini, Giancarlo & Moro, D. & Green, R., 2004. "Maintaining and Testing Separability in Demand Systems," Staff General Research Papers 11247, Iowa State University, Department of Economics.
  12. Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Teisl, Mario F & Bockstael, Nancy E & Levy, Alan, 2001. " Measuring the Welfare Effects of Nutrition Information," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 83(1), pages 133-49, February. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Susanto, Dwi & Rosson, C. Parr & Henneberry, Shida, 2008. "The Structure of U.S. Red Meat and Livestock Imports," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6824, Southern Agricultural Economics Association. [Downloadable!]
  2. Wang, Shinn-Shyr & Stiegert, Kyle W. & Dhar, Tirtha, 2005. "Strategic Pricing Behavior under Asset Value Maximization," 2005 Annual meeting, July 24-27, Providence, RI 19198, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  3. Jean-Paul Chavas & Hector J. Villarreal, 2005. "The Microeconomics of Poverty Traps in Mexico," DEGIT Conference Papers c010_050, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  4. Huffman, Wallace & Huffman, Sonya K. & Rickertsen, Kyrre & Tegene, Abebayehu, 2006. "Over-Nutrition and Changing Health Status in High Income Countries - Revised 02/28/08," Staff General Research Papers 12604, Iowa State University, Department of Economics. [Downloadable!]
  5. Bopape, Lesiba, 2006. "Heterogeneity of Household Food Expenditure Patterns in South Africa," 2006 Annual meeting, July 23-26, Long Beach, CA 21300, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  6. Stewart, Hayden & Blisard, Noel, 2006. "Household versus Community Effects: Who Really Pays More for Food?," 2006 Annual meeting, July 23-26, Long Beach, CA 21053, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Wang, Shinn-Shyr & Stiegert, Kyle W. & Dhar, Tirtha P., 2006. "Strategic Pricing Behavior under Asset Value Maximization," Staff Paper Series 495, University of Wisconsin, Agricultural and Applied Economics. [Downloadable!]
  8. Muhammad, Andrew, 2008. "The Role of the Imports for Re-Exports Program in Determining Canadian Demand for Imported Cheese: Implications for U.S. Exports," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 8214, Southern Agricultural Economics Association. [Downloadable!]
  9. Dhar, Tirtha & Foltz, Jeremy D., 2003. "Market Structure And Consumer Valuation In The Rbst-Free And Organic Milk Markets," 2003 Annual meeting, July 27-30, Montreal, Canada 22177, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  10. Du, Ying & Stiegert, Kyle, 2009. "Strategic Vertical Pricing in the U.S. Butter Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51712, Agricultural and Applied Economics Association. [Downloadable!]
  11. Dhar, Tirtha & Foltz, Jeremy D., 2004. "Is Soy Milk? The Economics Of The Soy Milk Market," 2004 Annual meeting, August 1-4, Denver, CO 20337, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  12. Dhar, Tirtha & Chavas, Jean-Paul & Cotterill, Ronald W., 2003. "An Economic Analysis of Product Differentiation under Latent Separability," 2003 Annual meeting, July 27-30, Montreal, Canada 21892, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  13. Nkamleu, Guy Blaise & Keho, Yaya & Gockowski, Jim & David, Soniia, 2007. "Investing in agrochemicals in the cocoa sector of Côte d’Ivoire: hypotheses, evidence and policy implications," MPRA Paper 14656, University Library of Munich, Germany. [Downloadable!]
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