Identifying State Dependence in Brand Choice: Evidence from Hurricanes
36 Pages Posted: 18 Aug 2021 Last revised: 8 Oct 2021
Date Written: October 7, 2021
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 that requires fewer assumptions than most previous work. Using data from the bottled water category, we show that demand increases substantially around hurricane events and causes households to purchase different brands. We find that purchase behavior reverts back to its pre-hurricane trajectory immediately after the hurricane and we are not able to reject the null hypothesis of no structural state dependence. We show that our results are not driven by unusual purchases during the hurricane or context-specific purchase behavior.
Keywords: Brand Choice, Brand Loyalty, State Dependence, Preference Heterogeneity
JEL Classification: C33, D12
Suggested Citation: Suggested Citation