Nested Logit Demand Estimation in Japanese Beer-like Beverage MarketsNested Logit Demand Estimation in Japanese Beer-like Beverage MarketsAN10367370 Nested Logit Demand Estimation in Japanese Beer-like Beverage Markets
In Japanese beer-like beverage market there are three kinds of products: beer, happoshu (low-malt beer), and "the third beer" (also called "new genre" or sonota no zasshu). Each brand of beer-like beverages in Japan must be classified into one of the three groups, and they are taxable at different rates depending on the groups they are classified under. Historically, the liquor tax in Japan on the beer-like beverages has been based on malt content in the products. The Japanese major breweries tried to avoid high tax rate on beer by inventing happoshu with low malt content and, then, the third beer with no malt content. Japanese authority reacted against it by carrying out the liquor tax revision effective from May 2006, when the tax rate on the third beer was raised and that on beer was reduced. This paper estimates the price elasticities of demand in Japanese beer-like beverage markets, comparing them between product groups by using data collected in 2005 and 2006. In the econometric analysis, we formulate a nested logit model for the differentiated products assuming that consumers choose one of the three groups of beer-like beverages in the first stage and, in the second stage, choose one brand from the product group chosen in the first stage so as to avoid independence from irrelevant alternatives (IIA). Furthermore, we choose a set of appropriate instrumental variables in the regression analysis because price and "within group" market share must be regarded as endogenous variables and OLS cannot be used. As the result, we show that the elasticities of the third beer with respect to a change in the price of beer or happoshu decreased after the tax revision. This finding suggests that the third beer became less attractive in terms of price by the tax revision in May 2006.