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

Posted: 12 Oct 2003

See all articles by Tirtha Dhar

Tirtha Dhar

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

Jean-Paul Chavas

University of Wisconsin

Brian W. Gould

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

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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.

Suggested Citation

Dhar, Tirtha and Chavas, Jean-Paul and Gould, Brian W., An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products. Available at SSRN: https://ssrn.com/abstract=418787

Tirtha Dhar

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

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Canada

Jean-Paul Chavas (Contact Author)

University of Wisconsin ( email )

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United States
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Brian W. Gould

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

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Madison, WI 53706-1503
United States
608-263-3212 (Phone)

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