A Dynamic Utility Maximization Model for Product Category Consumption
Tinbergen Institute Working Paper No. 2002-097/4
28 Pages Posted: 26 Nov 2002
Date Written: September 2002
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: Suggested Citation