Measuring and Testing Advertising-Induced Rotation in the Demand Curve

Measuring and Testing Advertising-Induced

Rotation in the Demand Curve

Yuqing Zheng - Cornell University ([email protected])
Henry W. Kinnucan - Auburn University
Harry M. Kaiser - Cornell University

Selected Paper prepared for presentation at the American Agricultural Economics
Association Annual Meeting, Portland, OR, July 29-August 1, 2007

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.

Copyright 2007 by Yuqing Zheng, Henry W. Kinnucan, and Harry M. Kaiser. All
rights reserved. Readers may make verbatim copies of this document for non-
commercial purposes by any means, provided that this copyright notice appears on
all such copies.

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