Demand Interrelationships of At-Home Nonalcoholic Beverage Consumption in the United States

In this study we modeled demand interrelationships of at-home nonalcoholic beverage consumption in the United States using a unique data set developed using Nielsen HomeScan panel data of household purchases of nonalcoholic beverages over the period January 1998 through December 2003. We used 72 monthly observations of expenditure shares, real prices and real per capita expenditures of 10 unique categories of nonalcoholic beverages in a full-blown AIDS model with an adjustment for seasonal (quarterly) variability in data. Compared to similar studies done in the past, our study used a rich delineation of nonalcoholic beverage categories, and in particular introduced isotonics for the first time. Furthermore, our study provided more information about important sub categories of nonalcoholic beverages, such as, regular and diet soft drink partition to soft drink category, high-fat and low-fat partition to milk category, and fruit drinks and fruit juices partition in fruit beverages category. It also separated the effects of tea and coffee, unlike past studies in the literature where both tea and coffee were analyzed as a single category. Estimated own-price elasticities were theoretically consistent sign-wise (negative sign) and majority of compensated cross-price elasticities revealed that most of (60%) of nonalcoholic beverages were net substitutes. We found that isotonics were the most price and expenditure elastic nonalcoholic beverage and it is followed by regular soft drinks. Furthermore, milk was found to be net complements with fruit drinks, fruit juices, water, and tea. Additionally, diet and regular soft drinks were also net complements. Fruit juice and fruit drinks were found to be net substitutes. Our study further showed that high-fat milk was a net substitute for low-fat milk.