Advertising and US alcoholic beverage demand: System-wide estimates

The effects of advertising on consumption of alcoholic beverages in the US are analysed. The goal is to obtain evidence on the importance of advertising at the level of beverage demand (beer, wine, spirits) and for total consumption of alcohol (per capita gallons of ethanol). A three-equation conditional demand system is estimated that includes own- and cross-beverage advertising as explanatory variables. Four models of the differential demand system are estimated, including the Rotterdam, AID, CBS, and NBR models, using annual US data for the period 1964-90 on beverage consumption, prices, expenditures, and real advertising. Estimates are obtained of the complete matrix of own- and cross-elasticities for each beverage's price and advertising. At the beverage level, the results indicate a positive but very small effect of advertising on beverage consumption, with most of the impact due to wine advertising and none due to beer advertising. There is no effect of advertising in the composite demand function for alcohol. Hence, the results from system-wide modelling suggest that alcohol advertising serves to reallocate brand sales, with no effect on total ethanol consumption and very small effects on beverage consumption.