Demand for differentiated products: Price and advertising evidence from the US beer market

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. (C) 2006 Elsevier B.V. All rights reserved.