Coordinating on Reducing Advertising: Carbonated Soft Drinks Industry and Combating Obesity

With the rise in obesity levels across the nation, policy makers and public interest groups are taking more interest in advertising of unhealthful foods. The Better Business Bureau has formed the Children’s Food and Beverage Advertising Initiative (CFBAI), which has recruited carbonated soft drink (CSD) manufactures to voluntarily restrict their advertising directed at children less than 12 years of age. This research explores the effects of the CFBAI on firm level advertising to children and adults using nonlinear time series processes. Estimated ARCH processes are significant in all models and capture varying pulse-advertising strategies by all major firms. We find that the market leader does in fact reduce its advertising to both adults and children and the second largest firm reduces advertising to adults. Advertising for the non-participating firm, however, increased for adults following the ban. The results emphasize the potential benefits and difficulty of coordinating cooperative behavior in this type of industry. It appears that policy strategies of this nature may be more effective if directed at industries as a whole and not at individual firms.