Abstract

This paper estimates substitution in consumer demand for coffee product categories in Japan using the linear approximate quadratic almost ideal demand system model (LA/QUAIDS). Three expenditure shares and demand equations for coffee beans and powder (beans/powder), canned and bottled coffee (canned/bottled) and coffee drunk at coffee shops (coffee shops) are estimated for two or more person households in forty-nine cities for the period January 2000 through February 2015. The expenditure elasticity estimates indicate that coffee shops are luxury goods while beans/powder and canned/bottled coffee are necessities in the Japanese household. The demographic effects show that persons over the age of 65 and people who earn more consume coffee at coffee shops. Moreover, seasonal effects show demand for canned and bottled coffee as mostly positive while it is mostly negative for coffee drunk at coffee shops in most of the months. The findings of this study indicate that coffee product categories in the Japanese market are substitutes for one another, which is consistent with the reality of coffee consumption in Japan.

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