Contact
AAWE
Economics Department
New York University
19 W. 4th Street, 6FL
New York, NY 10012, U.S.A.
Tel: (212) 992-8083
Fax: (212) 995-4186
E-Mail: karl.storchmann@nyu.edu
Most of the previous research examined the demand for alcohol consumed at the off-trade (consumed at home). However, some consumers might prefer to consume alcohol on- trade (away from home) or switch between on-trade and off-trade consumption as a reac- tion to price or income change. We estimate the Quadratic Almost Ideal Demand System consisting of three broad alcohol categories, consumed on-trade and off-trade, to derive own-price, cross-price, and income elasticities. Selectivity due to the high censoring is treated, and special attention is paid to quality-adjusted price. Beer consumption is the most responsive to income as well as own price changes, while spirits are the least respon- sive. The own-price elasticity of wine is –0.66 and –1.00 at on-trade and off-trade, respec- tively. Beer is more price responsive, spirits are less price responsive, and consumption reacts weaker in the off-trade market. Own-price elasticities of demand range between –1.20 and –0.41 at the off-trade and between –1.51 and –0.63 at the on-trade alcohol mar- ket. Increasing the price of wine in one market decreases wine consumption in another one. Between the two markets, wine and spirits are complementary, and wine and beer are substitutes in both markets.
Keywords: alcohol; censoring; consumer demand; QUAIDS; quality-adjusted unit price
AAWE
Economics Department
New York University
19 W. 4th Street, 6FL
New York, NY 10012, U.S.A.
Tel: (212) 992-8083
Fax: (212) 995-4186
E-Mail: karl.storchmann@nyu.edu