Advertising and the Distribution of Consumer Demand

In this paper, the Houthakker-Taylor model of consumer demand is extended to include the effects of advertising. Industry demand equations are estimated and long-run price and advertising elasticities of demand computed. A primary finding is that estimated advertising effects on demand are generally larger than corresponding price effects. In addition, the interaction of estimated advertising elasticities with current expenditures is examined to determine the level of output attributable to advertising in various industries. Our second major finding is that advertising has a substantial impact on the level of consumer demand in a number of selected industries.