Measuring and Testing Advertising-Induced Rotation in the Demand Curve

33 Pages Posted: 4 Nov 2007

See all articles by Yuqing Zheng

Yuqing Zheng

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Henry W. Kinnucan

Auburn University

Harry M. Kaiser

Cornell University - School of Applied Economics and Management

Abstract

Advertising can rotate the demand curve if it changes the dispersion of consumers' valuations. We provide an elasticity form measure of the advertising-induced demand curve rotation in five demand models and test for its presence in the US non-alcoholic beverage market. The Almost Ideal Demand System (AIDS) model reveals that doubling advertising spending rotates the demand curves clockwise for milk, and coffee and tea with associated slope changes of 7% and 12%. Soft-drink advertising rotates its demand curve counterclockwise. Our policy suggestion is that milk and soft-drink firms time advertising to coincide with high- and low-price periods, respectively.

Keywords: advertising, demand curve rotation, non-alcoholic beverages, price-advertising interaction

JEL Classification: Q1, M3

Suggested Citation

Zheng, Yuqing and Kinnucan, Henry W. and Kaiser, Harry M., Measuring and Testing Advertising-Induced Rotation in the Demand Curve. Applied Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1026596

Yuqing Zheng (Contact Author)

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Henry W. Kinnucan

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

Harry M. Kaiser

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-1598 (Phone)
607-254-4335 (Fax)

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