The price elasticity for alcohol in Sweden 1984–2003

Abstract

■ Aims The article addresses the following research questions: (i) How strong is the price elasticity for beer, wine and spirits? (ii) How rapid is the effect of a price change? (iii) Is the price elasticity stable across time and space? (iv) Does an increase in price give a corresponding effect as a decrease? ■ Methods & Data The sales data cover Systembolaget's retail sales of beer, wine and spirits for the period from January 1984 to March 2004. The price indexes are based on weighted baskets deflated by a consumer price index. Most of the analyses were performed on quarterly data. The data were analysed using the Box-Jenkins technique for time series analysis. ■ Results The price elasticities—as estimated from quarterly data—were statistically significant for all beverages; –0.8 for beer, –0.6 for wine and and –1 for spirits. Similar estimates were obtained from monthly data, suggesting a fast consumer response to price changes. The elasticity for beer was weaker during the period 1995–2004 (-0.6) than during the period 1984–1994 (-1.4), but it was no different in southern Sweden than in the remainder of the country. An increase in the price of spirits seems to affect sales as much as a price decrease, that is, the price effect seems to be symmetric. Finally, the results indicated that since 1995 sales of beer and wine increased more, and spirits sales less, than predicted from the development in prices. ■ Conclusions The study confirms previous findings that the demand of alcoholic beverages is responsive to changes in price; however, price is not the sole factor that drives the trends in sales. The reduced elasticity for beer may be due to the marked drop in beer prices.

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