NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

The Effect of Price Advertising and Prices: Evidence in the Wake of 44 Liquormart

Jeffrey Milyo, Joel Waldfogel

NBER Working Paper No. 6488
Issued in March 1998
NBER Program(s):The Law and Economics Program, The Industrial Organization Program

In May 1996 the U.S. Supreme Court struck down Rhode Island's ban on advertising prices of alcoholic beverages, making Rhode Island the subject of a natural experiment for measuring the impact of advertising on prices. Using Massachusetts prices as controls, we find that while advertising stores substantially cut prices of advertised products, prices of other products, at both advertising and non-advertising stores, rise under the advertising regime. We investigate stores' pricing responses to rivals' price advertising and find that small, non-advertising stores raise their prices of products advertised by rivals beyond their baseline price increase, while larger, advertising stores raise by less their prices of rival-advertised products. We find no reductions in price dispersion across stores with the introduction of price advertising. However, those stores that choose to advertise do have lower average prices both before and after the law change. Indirect information on quantities sold, based on Rhode Island Lottery ticket sales, indicate that newspaper-advertising stores draw a higher share of customers after they advertise than before.

download in pdf format
   (1237 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6488

Published: American Economic Review, Vol. 89, no. 5 (December 1999): 1081-1096. citation courtesy of

Users who downloaded this paper also downloaded* these:
Berry, Levinsohn, and Pakes w6481 Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market
Kessler and Levitt w6484 Using Sentence Enhancements to Distinguish between Deterrence and Incapacitation
Baldwin and Ottaviano w6483 Multiproduct Multinationals and Reciprocal FDI Dumping
Gustafson and Levine w6489 Less-Skilled Workers, Welfare Reform, and the Unemployment Insurance System
Mullahy t0228 Much Ado About Two: Reconsidering Retransformation and the Two-Part Model in Health Economics
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us