Measuring and Testing Advertising-Induced Rotation in the Demand Curve

Measuring and Testing Advertising-Induced

Rotation in the Demand Curve

Introduction

The goal of this research is to model and measure the effects of advertising allowing
for both outward (parallel) shifts and advertising-induced rotation in demand curves,
with an application to the U.S. non-alcoholic beverage market. Largely viewed as
being persuasive or informative (Bagwell 2005), advertising has received a large
number of studies on its shift effects on demand (Nelson and Moran 1995; Dong,
Chung, and Kaiser 2004). Simply enough, advertising, however, can rotate the
demand curve if it changes the dispersion of consumers’ valuations. Surprisingly, as
Johnson and Myatt (2006, p. 756) pointed out, “While demand rotation is an
elementary concept, it has received remarkably little formal study.” Johnson and
Myatt (2006) further proposed a new taxonomy of advertising in which hype shifts
demand by emphasizing the product’s existence and real information rotates demand
by matching the product’s characteristics with the consumer’s subjective
preferences.¹ Quilkey (1986, p. 51) provided another theoretical explanation for the
demand curve rotation by arguing that advertising can rotate demand by stressing
either a product’s “substitutability for other products in its end uses”
(counterclockwise) or uniqueness (clockwise). If advertising rotates the demand
curve, two empirical questions follow and should be answered. First, to which
direction and by how much would advertising rotate the demand curve? Second,
what are the marketing implications for producers who advertise their products? We

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