How Much Do Consumers Know About the Quality of Products? Evidence from the Diaper Market

47 Pages Posted: 11 Oct 2010 Last revised: 15 Jun 2020

See all articles by Andrew T. Ching

Andrew T. Ching

Johns Hopkins University - Carey Business School

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Marketing

Michael P. Keane

University of New South Wales

Date Written: June 25, 2019

Abstract

To measure the extent of incomplete information about brand qualities faced by consumers, recent research in marketing and economics has extended traditional static choice models to explicitly allow for consumer learning. These models tend to be complicated and make stringent assumptions such as Bayesian updating. In this paper, we provide a simpler alternative method to measure how much consumers know about the quality of quasi-durable products. Our key insight is that for products that depreciate over time and require repeated purchases, individuals' observed inter-purchase spells provide an objective measure of brand qualities in terms of durability. This is simply because the higher the durability, the longer a product can last in general, and hence its observed inter-purchase spells should also be longer. Based on this argument, we use a scanner panel data set for diapers to estimate both the subjective perceived brand qualities (based on revealed preference data) and the objective brand qualities (based on brand-specific inter-purchase spells). Our estimates allow us to compare these two measures of qualities and infer the extent of incomplete information faced by parents. With our results, we can address questions such as: Do parents make the right choice in the diapers category? Can they save some money by switching from a national brand to a store brand, or the other way around? How much savings can they get?

Keywords: Product Quality, Incomplete Information, Quasi-durable goods, Brand Choice, Inter-purchase Spells, Inventory

JEL Classification: C12, C33, C35, C41, C12, D80, E21, L68, M21, M31

Suggested Citation

Ching, Andrew T. and Erdem, Tulin and Keane, Michael P., How Much Do Consumers Know About the Quality of Products? Evidence from the Diaper Market (June 25, 2019). Available at SSRN: https://ssrn.com/abstract=1690207 or http://dx.doi.org/10.2139/ssrn.1690207

Andrew T. Ching (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

Michael P. Keane

University of New South Wales ( email )

Sydney, NSW
Australia

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