Demand for differentiated products: Price and advertising evidence from the U.S. beer market

Abstract

This paper employs a nation-wide sample of supermarket scanner data to estimate a large brand-level demand system for beer in the U.S. using the Distance Metric method of Pinkse, Slade and Brett [Pinkse, J., Slade, M., Brett, C., 2002. Spatial price competition: a semiparametric approach. Econometrica 70, 1111–1155]. Unlike previous studies, this work estimates the own- and cross-advertising elasticities in addition to price elasticities. Positive and negative cross-advertising elasticities imply the presence of both cooperative and predatory effects of advertising expenditures across brands; however, the former effect appears to dominate suggesting that advertising increases the overall demand for beer. We discuss the implications of these results in this industry.