Identifying State Dependence in Brand Choice: Evidence from Hurricanes

42 Pages Posted: 18 Aug 2021 Last revised: 6 Sep 2022

See all articles by Julia Levine

Julia Levine

University of California, Los Angeles (UCLA) - Anderson School of Management

Stephan Seiler

Imperial College Business School; Centre for Economic Policy Research

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2022

Abstract

We analyze structural state dependence in brand choice using variation from brand switching during stock-outs caused by hurricanes. We derive a simple test for structural state dependence based on the time-series of choice persistence for households affected by the stock-outs. Using data from the bottled water category, we show that demand increases substantially before hurricanes, causing households to purchase different brands. We find that purchase behavior reverts back to its pre-hurricane trajectory immediately after a hurricane and we are not able to reject the null hypothesis of no structural state dependence. By contrast, the common approach of estimating structural state dependence based on temporal price variation via a discrete choice model yields a positive effect using data for the same category. We argue that our approach is better suited to identify the causal impact of past choices because it requires fewer assumption and is based on more plausibly exogenous variation in brand switching due to stock-outs.

Keywords: Brand Choice, Brand Loyalty, State Dependence, Preference Heterogeneity

JEL Classification: C33, D12

Suggested Citation

Levine, Julia and Seiler, Stephan, Identifying State Dependence in Brand Choice: Evidence from Hurricanes (September 1, 2022). Available at SSRN: https://ssrn.com/abstract=3906086 or http://dx.doi.org/10.2139/ssrn.3906086

Julia Levine

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Stephan Seiler (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research ( email )

London
United Kingdom

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