Files
Abstract
We propose a regime-switching model that allows demand to respond asymmetrically to
upward and downward advertising changes. With the introduction of a smooth transition
function, the model features smooth rather than abrupt parameter changes between
regimes. We apply the model to nonalcoholic beverage data in the United States for 1974
through 2005 to investigate asymmetric advertising response. Results indicate that a
decrease in milk advertising had a more profound impact on milk demand than an increase
did. An increase in milk advertising had no impact on milk demand, but a decrease could
have an own-advertising elasticity up to 0.049.