How Collinearity Affects Mixture Regression Results
Marketing Letters, 2014, Forthcoming
Posted: 25 Jul 2014
Date Written: 2014
Mixture regression models are an important method for uncovering unobserved heterogeneity. A fundamental challenge in their application relates to the identification of the appropriate number of segments to retain from the data. Prior research has provided several simulation studies that compare the performance of different segment retention criteria. Although collinearity between the predictor variables is a common phenomenon in regression models, its effect on the performance of these criteria has not been analyzed thus far. We address this gap in research by examining the performance of segment retention criteria in mixture regression models characterized by systematically increased collinearity levels. The results have fundamental implications and provide guidance for using mixture regression models in empirical (marketing) studies.
Keywords: Market segmentation, Segment retention, Mixture regression, Collinearity
JEL Classification: A00
Suggested Citation: Suggested Citation