The Long-Run Demand for Alcoholic Beverages and the Advertising Debate: A Cointegration Approach

ADVANCES IN APPLIED MICROECONOMICS: ADVERTISING AND DIFFERENTIATED PRODUCTS, Vol. 10, Michael R. Baye and Jon P. Nelson, eds., pp. 31-54, Amsterdam: JAI Press, 2001

Posted: 2 Nov 2004

See all articles by Jon P. Nelson

Jon P. Nelson

Pennsylvania State University - College of the Liberal Arts - Department of Economic

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

John R. Moran

Penn State University

Abstract

Time-series models of the demand for alcoholic beverages have been criticized for use of annual data; omitted variables; mis-measurement of advertising; simultaneous equations bias; and inadequate attention to nonstationarity and dynamics. This paper reappraises the relationship between alcohol advertising, price, and consumption in a manner which speaks to these issues. Using quarterly data from 1970:1 to 1990:4 on three beverages (beer, wine, and distilled spirits), we find evidence of cointegration between beverage consumption, prices, advertising, and real income. Elasticities obtained from the estimated cointegrating vectors indicate that long-run beverage demands are both price and income inelastic. Moreover, after correcting for each of the problems described above, advertising has virtually no influence on the steady-state level of alcoholic beverage consumption.

Keywords: Advertising, Cointegration, Consumer Demand

JEL Classification: C32, D12, M37, I18

Suggested Citation

Nelson, Jon P. and Coulson, N. Edward and Moran, John R., The Long-Run Demand for Alcoholic Beverages and the Advertising Debate: A Cointegration Approach. ADVANCES IN APPLIED MICROECONOMICS: ADVERTISING AND DIFFERENTIATED PRODUCTS, Vol. 10, Michael R. Baye and Jon P. Nelson, eds., pp. 31-54, Amsterdam: JAI Press, 2001. Available at SSRN: https://ssrn.com/abstract=612704

Jon P. Nelson (Contact Author)

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

Kern Graduate Building
University Park, PA 16802-3306
United States
814-237-0157 (Phone)

HOME PAGE: http://econ.la.psu.edu/people/jpn

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
814-863-0625 (Phone)
814-863-4775 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John R. Moran

Penn State University ( email )

116 Henderson Bldg.
Penn State University
University Park, PA 16802
United States

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