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How much do consumers know about the quality of products? Evidence from the diaper market

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  • Andrew T. Ching

    (Johns Hopkins University)

  • Tülin Erdem

    (New York University)

  • Michael P. Keane

    (University of New South Wales)

Abstract

To measure the extent of incomplete information about brand qualities faced by consumers, recent research in marketing and economics has extended traditional static choice models to explicitly allow for consumer learning. These models tend to be complicated and make stringent assumptions such as Bayesian updating. In this paper, we provide a simpler alternative method to measure how much consumers know about the quality of quasi-durable products. Our key insight is that for products that depreciate over time and require repeated purchases, individuals’ observed inter-purchase spells provide another measure of brand qualities in terms of durability. This is simply because the higher the durability, the longer a product can last in general, and hence its observed inter-purchase spells should also be longer. Based on this argument, we propose an empirical framework to estimate both the perceived brand quality (based on revealed preference data) and brand durability (based on brand-specific inter-purchase spells) and apply it to a scanner panel dataset for diapers. Our estimates allow us to compare these two measures of qualities and infer the extent of incomplete information faced by parents. With our results, we can address questions such as: Do parents make the right choice in the diapers category? Can they save some money by switching from a national brand to a store brand or the other way around? How much savings can they get?

Suggested Citation

  • Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2020. "How much do consumers know about the quality of products? Evidence from the diaper market," The Japanese Economic Review, Springer, vol. 71(4), pages 541-569, October.
    • Handle: RePEc:spr:jecrev:v:71:y:2020:i:4:d:10.1007_s42973-019-00030-x
    DOI: 10.1007/s42973-019-00030-x
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    Cited by:

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    More about this item

    Keywords

    Incomplete information; Product quality; Efficiency unit; Quasi-durable goods; Brand choice; Inter-purchase spells; Inventory;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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