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The Price Consideration Model of Brand Choice

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  • Ching, Andrew
  • Erdem, Tulin
  • Keane, Michael

Abstract

The workhorse brand choice models in marketing are the multinomial logit (MNL) and nested multinomial logit (NMNL). These models place strong restrictions on how brand share and purchase incidence price elasticities are related. In this paper, we propose a new model of brand choice, the “price consideration” (PC) model, that allows more flexibility in this relationship. In the PC model, consumers do not observe prices in each period. Every week, a consumer decides whether to consider a category. Only then does he/she look at prices and decide whether and what to buy. Using scanner data, we show the PC model fits much better than MNL or NMNL. Simulations reveal the reason: the PC model provides a vastly superior fit to inter-purchase spells.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4686.

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Date of creation: 18 Aug 2007
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Handle: RePEc:pra:mprapa:4686

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Keywords: Brand Choice; Purchase Incidence; Price Elasticity; Inter-purchase Spell;

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  1. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 995-1026, September.
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  9. Erdem, Tulin & Imai, Susumu & Keane, Michael, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," MPRA Paper 52516, University Library of Munich, Germany.
  10. Erdem, Tulin & Keane, Michael P. & Sun, Baohong, 1998. "Missing price and coupon availability data in scanner panels: Correcting for the self-selection bias in choice model parameters," Journal of Econometrics, Elsevier, Elsevier, vol. 89(1-2), pages 177-196, November.
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  15. Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Stephan Seiler, 2010. "The impact of search costs on consumer behavior: a dynamic approach," 2010 Meeting Papers, Society for Economic Dynamics 559, Society for Economic Dynamics.
  2. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2014. "A Simple Method to Estimate the Roles of Learning, Inventories and Category Consideration in Consumer Choice," Economics Papers 2014-W01, Economics Group, Nuffield College, University of Oxford.
  3. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2013. "Learning Models: An Assessment of Progress, Challenges and New Developments," Economics Papers 2013-W07, Economics Group, Nuffield College, University of Oxford.
  4. Michael D. Grubb & Matthew Osborne, 2012. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," Boston College Working Papers in Economics, Boston College Department of Economics 829, Boston College Department of Economics.
  5. Nada Wasi & Michael P. Keane, 2012. "Estimation of Discrete Choice Models with Many Alternatives Using Random Subsets of the Full Choice Set: With an Application to Demand for Frozen Pizza," Economics Papers 2012-W13, Economics Group, Nuffield College, University of Oxford.
  6. Michael P. Keane, 2013. "Panel data discrete choice models of consumer demand," Economics Papers 2013-W08, Economics Group, Nuffield College, University of Oxford.
  7. Christopher Jeffords, 2014. "Preference-directed regulation when ethical environmental policy choices are formed with limited information," Empirical Economics, Springer, Springer, vol. 46(2), pages 573-606, March.
  8. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics, Springer, Springer, vol. 11(2), pages 155-203, June.
  9. Yan Liu & Subramanian Balachander, 2014. "How long has it been since the last deal? Consumer promotion timing expectations and promotional response," Quantitative Marketing and Economics, Springer, Springer, vol. 12(1), pages 85-126, March.
  10. Wiktor Adamowicz & David Bunch & Trudy Cameron & Benedict Dellaert & Michael Hanneman & Michael Keane & Jordan Louviere & Robert Meyer & Thomas Steenburgh & Joffre Swait, 2008. "Behavioral frontiers in choice modeling," Marketing Letters, Springer, Springer, vol. 19(3), pages 215-228, December.
  11. Michael P. Keane, 2010. "A Structural Perspective on the Experimentalist School," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 24(2), pages 47-58, Spring.

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