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Abstract
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.