An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products

The paper explores the issue of price and expenditure endogeneity in empirical demand analysis. The analysis focuses on the US carbonated soft drink market. We test the null hypothesis that price and expenditures are exogenous in the demand for carbonated soft drinks. Using an Almost Ideal Demand System (AIDS) specification, we strongly reject exogeneity for both prices and expenditures. We find that accounting for price/expenditures endogeneity significantly impacts demand elasticity estimates. We also evaluate the implications of endogeneity issues for testing weak separability.


Issue Date:
2002
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/201561
Total Pages:
44
Series Statement:
FSWP
2002-01




 Record created 2017-04-01, last modified 2017-08-28

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