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

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  • Dhar, Tirtha Pratim
  • Chavas, Jean-Paul
  • Gould, Brian W.

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.

Suggested Citation

  • Dhar, Tirtha Pratim & Chavas, Jean-Paul & Gould, Brian W., 2002. "An Empirical Assessment of Endogeneity Issues In Demand Analysis for Differentiated Products," Research Reports 25227, University of Connecticut, Food Marketing Policy Center.
  • Handle: RePEc:ags:uconnr:25227
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    References listed on IDEAS

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