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
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: Suggested Citation