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A Dynamic Utility Maximization Model for Product Category Consumption

Author

Listed:
  • Rutger van Oest

    () (Tilburg University)

  • Philip Hans Franses

    () (Faculty of Economics, Erasmus University Rotterdam)

  • Richard Paap

    () (Faculty of Economics, Erasmus University Rotterdam)

Abstract

It is conceivable that the "whether to buy" and "how much tobuy" decisions in the purchasing process of households areinfluenced by the inventory process. In this paper we thereforeput forward a model for consumption, where we rely on establishedeconomic theory. We incorporate this model in a model forpurchase behavior. Our consumption specification, which isderived from utility maximization principles, is more flexiblethan an ad hoc approach, which has recently been proposed inthe literature. We illustrate our model for yogurt purchases,and show that our model yields important additional and usefulinsights. One such insight is that promotion anticipationbehavior turns out not only to occur in the purchasing process,but also in the consumption process.

Suggested Citation

  • Rutger van Oest & Philip Hans Franses & Richard Paap, 2002. "A Dynamic Utility Maximization Model for Product Category Consumption," Tinbergen Institute Discussion Papers 02-097/4, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20020097
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    File URL: https://papers.tinbergen.nl/02097.pdf
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    More about this item

    Keywords

    consumption function; inventory; utility maximization; promotion anticipation.;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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