Brand and Quantity Choice Dynamics Under Price Uncertainty

Erdem, Tulin and Imai, Susumu and Keane, Michael (2003): Brand and Quantity Choice Dynamics Under Price Uncertainty. Published in: Quantitative Marketing and Economics , Vol. 1:1, (2003): pp. 5-64.

Abstract

We develop a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations. Our framework accounts for how inventories and expectations of future prices affect current period purchase decisions. We estimate our model using scanner data for the ketchup category. Our results indicate that price expectations and the nature of the price process have important effects on demand elasticities. Long-run cross price elasticities of demand are more than twice as great as short-run cross price elasticities. Temporary price cuts (or ‘‘deals’’) primarily generate purchase acceleration and category expansion, rather than brand switching.

• Item Type: MPRA Paper
• Language: English
• Keywords: price expectations, pricing, scanner data, dynamic programming, simulation, discrete choice, stock piling, inventories
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C35 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising

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