Aggregate advertising, sales volume and relative prices in the long run

Abstract

This paper examines the relationship between advertising expenditures, sales and the cost of advertising using annual UK data over the period 1967–1997. Strong evidence is found for the existence of a cointegrating relationship between real advertising expenditures, sales volumes, goods prices and the cost of advertising messages. Error correction models fit the data well although the estimated price elasticities are not consistent with the equilibrium relationship derived from the Dorfman-Steiner equilibrium condition with a Cobb-Douglas demand function.