A Dynamic Utility Maximization Model for Product Category Consumption

Tinbergen Institute Working Paper No. 2002-097/4

28 Pages Posted: 26 Nov 2002

See all articles by R.D. van Oest

R.D. van Oest

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Date Written: September 2002

Abstract

It is conceivable that the "whether to buy" and "how much to buy" decisions in the purchasing process of households are influenced by the inventory process. In this paper we therefore put forward a model for consumption, where we rely on established economic theory. We incorporate this model in a model for purchase behavior. Our consumption specification, which is derived from utility maximization principles, is more flexible than an ad hoc approach, which has recently been proposed in the literature. We illustrate our model for yogurt purchases, and show that our model yields important additional and useful insights. One such insight is that promotion anticipation behavior turns out not only to occur in the purchasing process, but also in the consumption process.

Keywords: consumption function, inventory, utility maximization, promotion anticipation

JEL Classification: C51, D11, D12

Suggested Citation

van Oest, Rutger and Franses, Philip Hans and Paap, Richard, A Dynamic Utility Maximization Model for Product Category Consumption (September 2002). Tinbergen Institute Working Paper No. 2002-097/4. Available at SSRN: https://ssrn.com/abstract=335741 or http://dx.doi.org/10.2139/ssrn.335741

Rutger Van Oest (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 8946 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute

P.O. Box 1738
H16-32
3000 DR Rotterdam
Netherlands

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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