The Effect of Price Advertising and Prices: Evidence in the Wake of 44 Liquormart

Jeffrey Milyo and Joel Waldfogel

No 6488, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In May 1996 the U.S. Supreme Court struck down Rhode Island's ban on advertising prices of alcoholic beverages, making Rhode Island the subject of a natural experiment for measuring the impact of advertising on prices. Using Massachusetts prices as controls, we find that while advertising stores substantially cut prices of advertised products, prices of other products, at both advertising and non-advertising stores, rise under the advertising regime. We investigate stores' pricing responses to rivals' price advertising and find that small, non-advertising stores raise their prices of products advertised by rivals beyond their baseline price increase, while larger, advertising stores raise by less their prices of rival-advertised products. We find no reductions in price dispersion across stores with the introduction of price advertising. However, those stores that choose to advertise do have lower average prices both before and after the law change. Indirect information on quantities sold, based on Rhode Island Lottery ticket sales, indicate that newspaper-advertising stores draw a higher share of customers after they advertise than before.

JEL-codes: K20 L15 (search for similar items in EconPapers)
Date: 1998-03
Note: LE IO
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as American Economic Review, Vol. 89, no. 5 (December 1999): 1081-1096.

Downloads: (external link)
http://www.nber.org/papers/w6488.pdf (application/pdf)

Related works:
Journal Article: The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart (1999)
Working Paper: The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6488

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6488

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().