State dependence and alternative explanations for consumer inertia
Günter J. Hitsch and
Peter Rossi ()
RAND Journal of Economics, 2010, vol. 41, issue 3, 417-445
For many consumer packaged goods products, researchers have documented inertia in brand choice, a form of persistence whereby consumers have a higher probability of choosing a product that they have purchased in the past. We show that the finding of inertia is robust to flexible controls for preference heterogeneity and not due to autocorrelated taste shocks. We explore three economic explanations for the observed structural state dependence: preference changes due to past purchases or consumption experiences which induce a form of loyalty, search, and learning. Our data are consistent with loyalty, but not with search or learning. This distinction is important for policy analysis, because the alternative sources of inertia imply qualitative differences in firm's pricing incentives and lead to quantitatively different equilibrium pricing outcomes. Copyright (c) 2010, RAND.
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (45) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2010.00106.x link to full text (text/html)
Access to full text is restricted to subscribers.
Working Paper: State Dependence and Alternative Explanations for Consumer Inertia (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:randje:v:41:y:2010:i:3:p:417-445
Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0741-6261
Access Statistics for this article
RAND Journal of Economics is currently edited by James Hosek
More articles in RAND Journal of Economics from RAND Corporation Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().