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Abstract
As a first effort at modeling nonalcoholic beverage demand in a systemwide framework that
includes bottled water, this article examines the impact of advertising on the demand for
nonalcoholic beverages in the United States. We employed an AIDS (almost ideal demand
system) model of five jointly estimated equations that included advertising expenditures as
explanatory variables to evaluate annual U.S. consumption of nonalcoholic beverages for 1974
through 2005. Results suggest that advertising increases demand for fluid milk, soft drinks,
and coffee and tea, but not for juice or bottled water. Advertising spillover effects occur in
over 50 percent of the cases considered, and such effects can be substantial, particularly for
advertising of soft drinks, and coffee and tea. We find that a large increase in the retail price of
fluid milk, an increasing trend towards dining out, and positive spillover effects from soft drink
advertising made significant contributions to bottled water’s success in recent years.