Measuring and Testing Advertising-Induced Rotation in the Demand Curve

Yuqing Zheng (), Henry W. Kinnucan and Harry M. Kaiser

No 9938, 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

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 U.S. non-alcoholic beverage market. The AIDS model reveals that doubling advertising spending rotates the demand curves clockwise for milk, and coffee and tea with associated slope changes of 7.3% and 11.6%. Soft-drink advertising rotates its demand curve counterclockwise. Our policy suggestion is that milk and soft-drink firms might enhance profits by timing advertising to coincide with high- and low-price periods, respectively.

Keywords: Demand and Price Analysis (search for similar items in EconPapers)
Date: 2007

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