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Identifying State Dependence in Brand Choice: Evidence from Hurricanes

Author

Listed:
  • Julia Levine
  • Stephan Seiler
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.

Suggested Citation

  • Julia Levine & Stephan Seiler, 2022. "Identifying State Dependence in Brand Choice: Evidence from Hurricanes," CESifo Working Paper Series 9889, CESifo.
    • Handle: RePEc:ces:ceswps:_9889
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9889.pdf
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    References listed on IDEAS

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    1. Ravi Anupindi & Maqbool Dada & Sachin Gupta, 1998. "Estimation of Consumer Demand with Stock-Out Based Substitution: An Application to Vending Machine Products," Marketing Science, INFORMS, vol. 17(4), pages 406-423.
    2. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    3. Frank M. Bass & Moshe M. Givon & Manohar U. Kalwani & David Reibstein & Gordon P. Wright, 1984. "An Investigation into the Order of the Brand Choice Process," Marketing Science, INFORMS, vol. 3(4), pages 267-287.
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    Cited by:

    1. Sai Chand Chintala & Jūra Liaukonytė & Nathan Yang, 2024. "Browsing the Aisles or Browsing the App? How Online Grocery Shopping is Changing What We Buy," Marketing Science, INFORMS, vol. 43(3), pages 506-522, May.

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    More about this item

    Keywords

    brand choice; brand loyalty; state dependence; preference heterogeneity;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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