Advertising Strategies and Effectiveness of Traditional Advertising under Soda Tax Policy

• In Event: Food and Beverage Policies

Abstract

This paper examines how firms adjust advertising strategies and advertising effectiveness in response to soda taxation, using the case of Berkeley, California’s 2014 soda tax. While prior research has primarily focused on the direct effects of soda taxes on prices, consumption, and health outcomes, less is known about how firms’ strategic responses, particularly in advertising, may shape the ultimate effectiveness of these policies.

The central research question is: how does a soda tax affect (i) firms’ advertising spending and (ii) the effectiveness of advertising in driving demand? To address this, I use weekly product-level sales and advertising data covering major regular and diet soda brands from 2014 to 2015. The empirical strategy combines a difference-in-differences framework with a border-market identification approach, exploiting geographic variation between Berkeley and neighboring untaxed areas.

The results show substantial changes in both advertising behavior and effectiveness following the tax. First, firms reduced advertising spending for regular soda by approximately 16.4 percent in Berkeley after the policy, with larger declines relative to diet soda and light beer. Second, the own-advertising elasticity for regular soda declined by 0.023, shifting from a positive pre-policy elasticity (0.014) to a negative post-policy elasticity (–0.009), indicating that traditional advertising became significantly less effective in the taxed market. Third, firms adopted spatial reallocation strategies, reducing advertising exposure near Berkeley while increasing it in more distant markets.

These findings highlight an important but understudied channel through which soda taxes operate: firm strategic responses. By altering both the level and effectiveness of advertising, soda taxes may amplify or attenuate policy impacts on consumption. The results have implications for public health policy design, suggesting that accounting for firm behavior is crucial in evaluating the full effects of sin taxes. More broadly, this study contributes to understanding how regulation affects market competition, advertising dynamics, and consumer outcomes.

Author

• Rajib Rahman, University of Massachusetts at Amherst
  Presenting Author