Consequences of omitting advertising in demand estimation: An application to theatrical movies
نویسنده
چکیده
Given the difficulties of properly estimating demand in the presence of advertising, advertising has often been omitted. This paper uses a Monte Carlo experiment of price-and-ad-setters to show that the omission of advertising can cause substantial biases in estimation, even in markets with relatively low ad-sales ratios and when advertising appears to be statistically insignificant. I then validate the appropriateness of these Monte Carlo simulations with respect to advertising with an analysis of domestic theatrical movies. Results using actual movie data when advertising is omitted and included mimic those of the simulations. Omitting advertising from this context overstates the impact of theaters by 25% and substantially understates the impact of starring cast members (by 80%).
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