Nonparametric Estimation of Habitual Brand Loyalty

96 Pages Posted: 8 Apr 2022 Last revised: 14 Nov 2023

See all articles by Xinyao Kong

Xinyao Kong

University of Texas at Dallas - Naveen Jindal School of Management

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Øystein Daljord

University of Chicago, Booth School of Business

Date Written: November 13, 2023

Abstract

Testing for and measuring habitual brand loyalty (HBL) is one of the earliest areas for empirical research on switching costs, and a classic questions in quantitative marketing. Using a partial identification approach, we derive the nonparametric identified set for the extent of HBL in a consumer population making multinomial brand choices. Several behavioral restrictions implied by popular random utility models can be applied to tighten the identified set without assuming a parametric model or utility maximization behavior. We also test whether consumers rationally plan these brand habits by testing for forward-looking choice behavior. We prove that the canonical dynamic discrete-choice model has ``built-in'' exclusion restrictions that semiparametrically identify the discount factor through moment conditions that do not require parameterizing consumers' flow utilities. Case studies of several large consumer goods categories reveal a non-trivial extent of HBL in consumers’ brand choices. Alternative explanations like learning and search costs are ruled out. Consumers are found to be forward-looking, but typically more impatient than would be implied by the real rate of interest. The long-run price elasticities from a dynamic discrete-choice model are found to be larger in magnitude than those from a model with myopic choices.

Keywords: habitual brand loyalty, dynamic potential outcomes, dynamic discrete choice, discount factor, partial identification

JEL Classification: D11, D12, L66, M3

Suggested Citation

Kong, Xinyao and Dube, Jean-Pierre H. and Daljord, Øystein, Nonparametric Estimation of Habitual Brand Loyalty (November 13, 2023). Available at SSRN: https://ssrn.com/abstract=4070747 or http://dx.doi.org/10.2139/ssrn.4070747

Xinyao Kong

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marketing Science Institute (MSI) ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

Øystein Daljord

University of Chicago, Booth School of Business ( email )

Chicago, IL 60637
United States
7738342146 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/oystein.daljord/index.html

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