Econometric evidence of cross‐market effects of generic dairy advertising

Abstract

We estimate a dairy demand system to evaluate generic dairy advertising in the US, 1990US, -2005. Previous empirical studies of generic dairy advertising focus only on the market of the advertised good, ignoring potential spill-over and feedback effects. We specify an LA/AIDS model of dairy demand, which allows consistent estimation of cross-price and cross-advertising effects across dairy product markets, and is flexible and satisfies the axioms of consumer theory. We use the non-linear 3SLS estimator to address endogenous prices and serial correlation, and conduct bootstrapping to generate empirical distributions of elasticity estimates. Results suggest that cross-market effects are economically and statistically important. Thus, econometric dairy demand models that ignore cross-advertising and cross-price effects are mis-specified. Previous work that ignores substitution between fluid milk and cheese overstates producers' returns to generic advertising for either product. r

Masked Heterogeneity in Aggregation: Incorporating Beliefs and Geographic Information into Consumer Willingness to Pay for State Brands

“…By excluding substitutes within the Appalachian region (i.e. Virginia Grown), the cross-market adverting effects become a form of omitted variable bias (Cakir and Balagtas, 2010). Shimp and Sharma (1987) were the first to quantify the country of origin effect in their reinvention of the consumer ethnocentrism definition to "represent the beliefs held by American consumers about the appropriateness, indeed morality, of purchasing foreign-made products."…”