Working Paper: NBER ID: w14912
Authors: Jean-Pierre Dub; Günter J. Hitsch; Peter E. Rossi
Abstract: For many consumer packaged goods products, researchers have documented a form of state dependence whereby consumers become "loyal" to products they have consumed in the past. That is, consumers behave as though there is a utility premium from continuing to purchase the same product as they have purchased in the past or, equivalently, there is a psychological cost to switching products. However, it has not been established that this form of state dependence can be identified in the presence of consumer heterogeneity of an unknown form. Most importantly, before this inertia can be given a structural interpretation and used in policy experiments such as counterfactual pricing exercises,alternative explanations which might give rise to similar consumer behavior must be ruled out. We develop a flexible model of heterogeneity which can be given a semi-parametric interpretation and rule out alternative explanations for positive state dependence such as autocorrelated choice errors, consumer search, or consumer learning.
Keywords: State Dependence; Consumer Inertia; Brand Loyalty; Consumer Behavior
JEL Codes: D12; L0; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| past purchases (D19) | current brand loyalty (M37) |
| switching brands (M37) | repeat purchase probability (C69) |
| autocorrelated choice errors (C25) | observed inertia (C69) |
| consumer search and learning (D83) | measured inertia (Y20) |