Spillover and Competitive Effects of Advertising in the Carbonated Soft Drink Market

Rigoberto Lopez, Yizao Liu () and Chen Zhu

No 18, Working Papers from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: This paper examines the spillover effects of television advertising on brand-level consumer demand for carbonated soft drinks (CSDs) and the competition consequences for manufacturers’ and private label CSDs. Using a random coefficients logit model (BLP) with household purchasing and advertising viewing data from five U.S. cities, we find that although brand advertising is important in increasing demand as previous work confirms, company advertising spillovers are nearly as important. Not surprisingly, advertising by competitors undermines demand for a particular manufacturer’s CSD brand but, surprisingly, there are positive spillover effects on the demand for private label brands. Further results show that eliminating all television advertising for CSDs would lower both brand and aggregate market shares (including private labels) as consumers migrate to other beverages. However, the dominant strategy is for leading companies to advertise to avoid losing revenues when competitors advertise or to increase revenues when they do not.

Keywords: advertising; demand; competition; consumer behavior; sodas; carbonated soft drinks (search for similar items in EconPapers)
JEL-codes: D12 I18 L66 Q18 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-02
New Economics Papers: this item is included in nep-com, nep-ipr, nep-pr~ and nep-mkt
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Working Paper: Spillover and Competitive Effects of Advertising in the Carbonated Soft Drink Market (2013)
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