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Econometric evidence of cross-market effects of generic dairy advertising

  • Metin Cakir

    (Department of Agricultural Economics, Purdue University, Indiana)

  • Joseph V. Balagtas

    (Department of Agricultural Economics, Purdue University, Indiana)

We estimate a dairy demand system to evaluate generic dairy advertising in the US, 1990-2005. Previous empirical studies of generic dairy advertising focus only on the market of the advertised good, ignoring potential spill-over and feedback effects. We specify an LA|AIDS model of dairy demand, which allows consistent estimation of cross-price and cross-advertising effects across dairy product markets, and is flexible and satisfies the axioms of consumer theory. We use the non-linear 3SLS estimator to address endogenous prices and serial correlation, and conduct bootstrapping to generate empirical distributions of elasticity estimates. Results suggest that cross-market effects are economically and statistically important. Thus, econometric dairy demand models that ignore cross-advertising and cross-price effects are mis-specified. Previous work that ignores substitution between fluid milk and cheese overstates producers' returns to generic advertising for either product. © 2010 Wiley Periodicals, Inc.

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File URL: http://hdl.handle.net/10.1002/agr.20203
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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 26 (2010)
Issue (Month): 1 ()
Pages: 83-99

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Handle: RePEc:wly:agribz:v:26:y:2010:i:1:p:83-99
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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