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Advertising Bans, Monopoly, and Alcohol Demand: Testing for Substitution Effects Using Panel Data

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  • Nelson, Jon P.

    (Pennsylvania State U)

Abstract

Using a panel of 45 states for the period 1982-97, this study analyzes the importance of several restrictive alcohol regulations, including advertising bans for billboards, bans of price advertising, state monopoly control of retail stores, and changes in the minimum legal drinking age. In contrast to previous research, the study allows for substitution among beverages as a response to a regulation that targets a specific beverage. A restrictive law that applies only to one beverage (or one form of advertising) can result in substitution toward other beverages (and other media). Allowing for substitution means that the net effect on total alcohol consumption is uncertain, and must be determined empirically. The empirical results demonstrate that monopoly control of spirits reduces consumption of that beverage, and increases consumption of wine. The effect on beer is positive, but is not statistically significant. The net effect on total alcohol is significantly negative. Higher minimum legal drinking age laws have negative effects on beverage and total alcohol consumption. Partial bans of advertising do not reduce total alcohol consumption, which in part reflects substitution effects. Results in the paper are applied to the Supreme Court's Central Hudson test for First Amendment constitutionality of restrictions on commercial speech.

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Bibliographic Info

Paper provided by Pennsylvania State University, Department of Economics in its series Working Papers with number 1-01-1.

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Date of creation: Jun 2001
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Handle: RePEc:ecl:peneco:1-01-1

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  1. Joel Waldfogel & Jeffrey Milyo, 1999. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, American Economic Association, vol. 89(5), pages 1081-1096, December.
  2. Jonathan Gruber, 2001. "Risky Behavior among Youths: An Economic Analysis," NBER Books, National Bureau of Economic Research, Inc, number grub01-1, October.
  3. Ruhm, Christopher J., 1995. "Economic conditions and alcohol problems," Journal of Health Economics, Elsevier, vol. 14(5), pages 583-603, December.
  4. Saffer, Henry & Chaloupka, Frank, 2000. "The effect of tobacco advertising bans on tobacco consumption," Journal of Health Economics, Elsevier, vol. 19(6), pages 1117-1137, November.
  5. Smith, Janet Kiholm, 1982. "An Analysis of State Regulations Governing Liquor Store Licensees," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 301-19, October.
  6. Sass, Tim R & Saurman, David S, 1995. "Advertising Restrictions and Concentration: The Case of Malt Beverages," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 66-81, February.
  7. McGahan, A M, 1995. "Cooperation in Prices and Capacities: Trade Associations in Brewing after Repeal," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 521-59, October.
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Cited by:
  1. 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.

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