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Choice Models for Budgeted Demand and Constrained Allocation

31 Pages Posted: 5 Oct 2011  

Takuya Satomura

Keio University - Faculty of Business and Commerce

Jeff D. Brazell

The Modellers, LLC

Greg M. Allenby

Ohio State University (OSU) - Department of Marketing and Logistics

Date Written: October 5, 2011

Abstract

Utility maximization is implicit in models of consumer choice, learning, forward-looking behavior and substitution. It is a central feature of models of market competition built on the aggregation of individual choices, and is assumed in nearly all quantitative models of behavior. Yet, while the assumption of utility maximization is widely present in marketing analysis, it is rarely expressed in a way that constrains the choices that are made. Constrained utility maximization leads to richer tradeoffs among the choices when budgets and allocations are assigned non-trivial roles in the choice process. In this paper we develop alternative models of constrained maximization, and show that models of constrained choice significantly improve the in-sample and predictive fit to the data in two conjoint studies -- a pharmaceutical study of physician drug allocation and a conjoint study of volumetric demand. Inferences about the budget constraint, and extensions to non-conjoint applications, are discussed.

Keywords: Volumetric Demand, Constrained Optimization, Budgeted Choice, Conjoint Analysis

JEL Classification: C33, C35, M31

Suggested Citation

Satomura, Takuya and Brazell, Jeff D. and Allenby, Greg M., Choice Models for Budgeted Demand and Constrained Allocation (October 5, 2011). Fisher College of Business Working Paper No. 1939109. Available at SSRN: https://ssrn.com/abstract=1939109 or http://dx.doi.org/10.2139/ssrn.1939109

Takuya Satomura

Keio University - Faculty of Business and Commerce ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

Jeff D. Brazell

The Modellers, LLC ( email )

6995 Union Park Center
Ste 300
Salt Lake City, UT 84047
United States
8018846688 (Phone)

HOME PAGE: http://www.themodellers.com

Greg M. Allenby (Contact Author)

Ohio State University (OSU) - Department of Marketing and Logistics ( email )

Fisher Hall 524
2100 Neil Ave
Columbus, OH 43210
United States

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