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Measuring and testing advertising-induced rotation in the demand curve

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  • Yuqing Zheng
  • Henry Kinnucan
  • Harry Kaiser

Abstract

Advertising can rotate the demand curve if it changes the dispersion of consumers' valuations. We provide an elasticity form measure of the advertising-induced demand curve rotation in five demand models and test for its presence in the US nonalcoholic beverage market. The Almost Ideal Demand System (AIDS) model reveals that doubling advertising spending rotates the demand curves clockwise for milk, and coffee and tea with associated slope changes of 7 and 12%. Soft-drink advertising rotates its demand curve counterclockwise. Our policy suggestion is that milk and soft-drink firms time advertising to coincide with high-and low-price periods, respectively.

Suggested Citation

  • Yuqing Zheng & Henry Kinnucan & Harry Kaiser, 2010. "Measuring and testing advertising-induced rotation in the demand curve," Applied Economics, Taylor & Francis Journals, vol. 42(13), pages 1601-1614.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:13:p:1601-1614
    DOI: 10.1080/00036840701721570
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    Cited by:

    1. Jinghua Xie & Dengjun Zhang, 2014. "Imperfect Competition and Structural Changes in the US Salmon Import Market," Marine Resource Economics, University of Chicago Press, vol. 29(4), pages 375-389.
    2. Luis A Sandoval & Carlos E Carpio & Marcos Sanchez-Plata, 2019. "The effect of ‘Traffic-Light’ nutritional labelling in carbonated soft drink purchases in Ecuador," PLOS ONE, Public Library of Science, vol. 14(10), pages 1-18, October.
    3. Xin Xu & Jayachandran N Variyam & Zhenxiang Zhao & Frank J Chaloupka, 2014. "Relative Food Prices and Obesity in U.S. Metropolitan Areas: 1976-2001," PLOS ONE, Public Library of Science, vol. 9(12), pages 1-22, December.
    4. Okrent, Abigail M. & MacEwan, Joanna P., 2014. "The Effects of Prices, Advertising, Expenditures, and Demographics on Demand for Nonalcoholic Beverages," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 43(1), pages 1-22, April.
    5. Zhai, Tianchang & Li, Lei & Wang, Jingjing & Si, Wei, 2022. "Will the consumption tax on sugar-sweetened beverages help promote healthy beverage consumption? Evidence from urban China," China Economic Review, Elsevier, vol. 73(C).
    6. Okrent, Abigail M. & MacEwan, Joanna P., 2014. "The Effects of Prices, Advertising, Expenditures, and Demographics on Demand for Nonalcoholic Beverages," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 0, pages 1-22.

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