Advertising in consumer allocation models: choice of functional form

This study investigates the empirical performance of four different functional forms for advertising-augmented consumer allocation models. The investigation is carried out within the context of the UK alcoholic drinks markets. The aims of the study are twofold: (i) to assess which of the four functional forms provides the best explanation of the data and may serve, therefore, as the most suitable framework for investigating advertising effects in these markets; and (ii) to consider whether the findings with regard to advertising effects are robust and consistent across model specifications. Advertising is found to have had no significant effect upon the ‘product composition’ or ‘level’ of total alcoholic drink consumption in the UK over the period from 1964 to 1996, and this result is robust with respect to variations in the specification of functional form. The consumption of alcoholic drink is affected by relative prices, total consumer budgeted expenditures and, to some extent, by autonomous shifts in tastes. The balance of the evidence from tests for functional form appeared to favour the Almost Ideal Demand system as a framework for investigating the influence of advertising and other factors on drink consumption.