Hybrid Consumption Paths in the Attribute Space: A Model and Application with Scanner Data

34 Pages Posted: 19 Mar 2008

See all articles by Sergi Jimenez-Martin

Sergi Jimenez-Martin

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Antonio Ladron-de-Guevara

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: February 2008

Abstract

This paper presents and estimates a dynamic choice model in the attribute space considering rational consumers. In light of the evidence of several state-dependence patterns, the standard attribute-based model is extended by considering a general utility function where pure inertia and pure variety-seeking behaviors can be explained in the model as particular linear cases. The dynamics of the model are fully characterized by standard dynamic programming techniques. The model presents a stationary consumption pattern that can be inertial, where the consumer only buys one product, or a variety-seeking one, where the consumer shifts among varied products. We run some simulations to analyze the consumption paths out of the steady state. Under the hybrid utility assumption, the consumer behaves inertially among the unfamiliar brands for several periods, eventually switching to a variety-seeking behavior when the stationary levels are approached. An empirical analysis is run using scanner databases for three different product categories: fabric softener, saltine cracker, and catsup. Non-linear specifications provide the best fit of the data, as hybrid functional forms are found in all the product categories for most attributes and segments. These results reveal the statistical superiority of the non-linear structure and confirm the gradual trend to seek variety as the level of familiarity with the purchased items increases.

Keywords: Dynamic Choice Model, Rational Consumers, Inertia, Variety Seeking, Hybrid Behavior, Scanner Data

JEL Classification: M31, C23

Suggested Citation

Jimenez-Martin, Sergi and Ladron-de-Guevara, Antonio, Hybrid Consumption Paths in the Attribute Space: A Model and Application with Scanner Data (February 2008). Available at SSRN: https://ssrn.com/abstract=1107791 or http://dx.doi.org/10.2139/ssrn.1107791

Sergi Jimenez-Martin (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 67 (Phone)
(34) 93 542 17 46 (Fax)

Antonio Ladron-de-Guevara

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 56 (Phone)
(34) 93 542 17 46 (Fax)

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