Many policies aim to “correct” choice behaviour of consumers to reflect total social cost of consumption by changing economic incentives (prices, incomes) or changing choice environment (advertising, availability, etc.). In many situations the social cost of consumption varies substantially across individuals or consumption occasions. These policies are often used in markets with large multi-product firms selling differentiated product. In these markets firms are likely to exercise market power and hence adjust their strategic choices in response to policy. Their incentives will depend on the shape of demand along with other factors.

We will discuss how we can use demand estimates to inform policy about how can we target policy better,  what are the gains of doing so, how are firms likely to respond, and what are the implications.

An understanding of:

• why it is important to allow for consumer heterogeneity in demand when considering policy in differentiated product markets,
• what empirical methods allow us to estimate suitably flexible demand models,
• what empirical approaches can we use to uncovering the impacts of advertising on demand,
• how do we conduct counterfactual analysis, and incorporate firm strategic responses, what are the key considerations when evaluating the welfare effects of policies such as those that change prices or restrict advertising.

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