Work detail

Analysis of demand for on-trade and off-trade alcoholic beverages in the Czech Republic

Author: Bc. Tereza Čiderová
Year: 2022 - summer
Leaders: Mgr. Milan Ščasný PhD.
Consultants:
Work type: Bachelors
Language: English
Pages: 84
Awards and prizes:
Link: https://dspace.cuni.cz/handle/20.500.11956/173504
Abstract: The majority of the previous research examined the demand for alcohol consumed off-trade. However, some consumers might prefer to consume on-trade
alcohol or switch between on-trade and off-trade consumption as a reaction to
price or income change. Therefore, we constructed a behavioral model which
considers beer, wine, and spirits consumed at home and away from home as
six separate goods. Firstly, we derived unit prices calculated as a ratio of expenditure and quantity consumed, imputed unit prices for non-consumers and
then adjusted them for the quality. Secondly, we estimated probit regressions
explaining consumption probabilities following Heien and Wessels’s approach
to deal with the censoring in our data. Lastly, we estimated the Quadratic
Almost Ideal Demand System to derive own-price, cross-price, and income elasticities. Consumption of beer was found to be the most responsive to income
changes, whilst spirits are the least responsive, and on-trade income elasticities
are always higher than their off-trade counterparts. Our results suggest that
compensated own-price elasticities of demand range between -0.90 and -0.40
at the off-trade and between -1.36 and -0.53 at the on-trade alcohol market.
On-trade alcoholic beverages were found to be mutual complements, implying
that increase in the price of one results in a decrease in overall demand for
alcohol consumed away from home. Lastly, off-trade beer’s unique place in the
Czech alcohol market has been supported by its positive cross-price elasticities with respect to all remaining beverages consumed at home or away from
home, implying that consumers mostly react to increases in prices of alcohol
by switching to at-home beer consumption. Data used in our analysis originate
from the Czech Household Budget Survey
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