The Effect of Price Advertising and Prices: Evidence in the Wake of 44 Liquormart
45 Pages Posted: 1 Jul 2000 Last revised: 25 Sep 2022
Date Written: March 1998
Abstract
In May 1996 the U.S. Supreme Court struck down Rhode Island's ban on advertising prices of alcoholic beverages, making Rhode Island the subject of a natural experiment for measuring the impact of advertising on prices. Using Massachusetts prices as controls, we find that while advertising stores substantially cut prices of advertised products, prices of other products, at both advertising and non-advertising stores, rise under the advertising regime. We investigate stores' pricing responses to rivals' price advertising and find that small, non-advertising stores raise their prices of products advertised by rivals beyond their baseline price increase, while larger, advertising stores raise by less their prices of rival-advertised products. We find no reductions in price dispersion across stores with the introduction of price advertising. However, those stores that choose to advertise do have lower average prices both before and after the law change. Indirect information on quantities sold, based on Rhode Island Lottery ticket sales, indicate that newspaper-advertising stores draw a higher share of customers after they advertise than before.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Does the Internet Make Markets More Competitive?
By Jeffrey R. Brown and Austan Goolsbee
-
Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
By Jeffrey R. Brown and Austan Goolsbee
-
Prices and Price Dispersion on the Web: Evidence from the Online Book Industry
By Karen Clay, Ramayya Krishnan, ...
-
Search, Obfuscation, and Price Elasticities on the Internet
By Glenn Ellison and Sara Fisher Ellison
-
Search, Obfuscation, and Price Elasticities on the Internet
By Glenn Ellison and Sara Fisher Ellison
-
Evidence on Learning and Network Externalities in the Diffusion of Home Computers
By Austan Goolsbee and Peter J. Klenow
-
In a World Without Borders: The Impact of Taxes on Internet Commerce
-
In a World Without Borders: the Impact of Taxes on Internet Commerce
-
Understanding Digital Markets: Review and Assesment
By Michael D. Smith, Joseph Bailey, ...