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

  • Nelson, Jon P.

    (Pennsylvania State U)

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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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. Christopher Ruhm, 1994. "Economic Conditions and Alcohol Problems," NBER Working Papers 4914, National Bureau of Economic Research, Inc.
  2. Cook, Philip J. & Moore, Michael J., 2000. "Alcohol," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 30, pages 1629-1673 Elsevier.
  3. 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.
  4. Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
  5. 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.
  6. Jonathan Gruber, 2001. "Risky Behavior among Youths: An Economic Analysis," NBER Books, National Bureau of Economic Research, Inc, number grub01-1, December.
  7. 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.
  8. 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.
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