Measuring and Testing Advertising-Induced Rotation in the Demand Curve

influencing consumers’ WTP by a varying degree. As Johnson and Myatt (2006)
argues, if advertising is unambiguously persuasive, then it will shift the demand
curve outward; however, it may discourage some customers from purchasing while
encouraging others, which leads to a rotation in the demand curve.

Figure (1d) presents two pdf’s of the milk WTP before and after another
hypothetical milk advertising campaign. The two pdf’s are normally distributed
with a common mean of three but different variances at one and 1.5, respectively.
The flatter and boldfaced pdf indicates that advertising increases the proportion of
customers that have high WTP for milk, as well as the proportion of customers that
have low WTP for milk. As an example, a milk advertising campaign emphasizing
the contribution of drinking milk to weight loss may increase milk lovers’ valuations
of milk; however, it may reduce the valuations of milk among those who seek
nutritional elements from milk as a cheap source. Figure (1e) shows that if the pdf
gets flatter, then the corresponding cdf rotates clockwise and intersects the original
cdf at the mean of WTP, WTP* (they intersect at the mean of WTP because the
advertising does not shift the pdf in this case). As a result, the demand curve rotates
clockwise around WTP* in figure (1f). Overall, if advertising is able to shift and
change the spread of the WTP simultaneously, the effects of advertising on demand
curves reduce to a rotation effect. Note that if the milk advertising campaign
induces those who like milk to become milk lovers without changing the proportion
of those who dislike or hate milk, it leads to a kinked demand curve instead.

Curve Rotation and Elasticity Change

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