The effect of price advertising on prices: Evidence in the wake of 44 Liquormart

Jeffrey Milyo, Joel Waldfogel

Research output: Contribution to journalArticlepeer-review

59 Scopus citations

Abstract

The 44 Liquormart decision, eliminating Rhode Island's ban on liquor price advertising, made Rhode Island the subject of a natural experiment for measuring the effect of advertising on prices. Using Massachusetts prices as controls we find that advertising stores substantially cut only prices of the products that they advertise Prices of other products, at both advertising and nonadvertising stores, do not change. Advertising stores cut their prices on products advertised by rivals, while nonadvertising stores do not. We find no reductions in price dispersion across stores. Newspaper-advertising stores appear to draw a higher share of customers after they advertise. (JEL L11, L51, L66).

Original languageEnglish (US)
Pages (from-to)1081-1096
Number of pages16
JournalAmerican Economic Review
Volume89
Issue number5
DOIs
StatePublished - Dec 1999

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