Modeling Heterogeneity and State Dependence in Consumer Choice Behavior

Abstract

In frequently-purchased-consumer-goods markets, consumer brand choices exhibit substantial persistence across purchase occasions. In this article, I estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence, using Nielsen scanner data on ketchup. I find evidence for true state dependence in the choice process, even after controlling for a rich heterogeneity structure. Simulation of the model indicates that the long-term effect of a promotion-induced purchase on future purchase probabilities is positive but small.

KEY WORDS:

• Brand choice
• Discrete choice model
• Method of simulated moments
• Multinomial probit
• Scanner data