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

13 Pages Posted: 2 Apr 2020

See all articles by Tirtha Dhar

Tirtha Dhar

University of British Columbia (UBC) - Sauder School of Business

Jean‐Paul Chavas

University of Maryland

Brian W. Gould

University of Wisconsin - Madison - Department of Agricultural & Applied Economics

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Date Written: August 2003

Abstract

This article explores the issue of price and expenditure endogeneity in empirical demand analysis. The analysis focuses on the U.S. 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.

Keywords: almost ideal demand system, carbonated soft drinks, endogeneity, separability

Suggested Citation

Dhar, Tirtha and Chavas, Jean‐Paul and Gould, Brian W., An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products (August 2003). American Journal of Agricultural Economics, Vol. 85, Issue 3, pp. 605-617, 2003, Available at SSRN: https://ssrn.com/abstract=3566334 or http://dx.doi.org/10.1111/1467-8276.00459

Tirtha Dhar (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Vancouver, BC V6T 1Z2
Canada

Jean‐Paul Chavas

University of Maryland

Brian W. Gould

University of Wisconsin - Madison - Department of Agricultural & Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States
608-263-3212 (Phone)

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