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Estimating Threshold Effects of U.S. Generic Fluid Milk Advertising

By Kenji Adachi and Donald J. Liu

Abstract

Adopting a spline threshold estimation procedure, this article investigates the threshold effects on demand of generic fluid milk advertising. A quarterly fluid milk demand equation with unknown thresholds is estimated. The results support the existence of a minimum threshold below which advertising has no impact on sales, and an upper threshold beyond which the law of diminishing returns dictates. Advertising is also found to have the effect of rendering fluid milk demand less elastic with respect to own price, and more elastic with respect to income. The simulations highlight the importance of accounting for threshold effects when evaluating promotion programs. Copyright 2009, Oxford University Press.

DOI identifier: 10.1093/ajae
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