Outside good utility and substitution patterns in direct utility models

Chul Kim, Adam N. Smith, Jaehwan Kim and Greg M. Allenby

Journal of choice modelling, 2023, vol. 49, issue C

Abstract: This paper investigates the role of the outside good utility function on admissible substitution patterns in multiple discrete/continuous demand models. We first present a set of novel results that characterize the functional form of quantity price effects within this class of models. The results highlight the relative inflexibility of many standard outside good utility functions. We then propose a new outside good utility function that admits more flexible marginal utility curves. Our empirical analysis uses household scanner panel data from the potato chip category, where we find empirical support for non-standard rates of satiation for the outside good. We then show how the restrictive substitution patterns induced by standard utility specifications may distort price elasticities and the evaluation of loyalty coupon targeting programs.

Keywords: Satiation; Multiple discreteness; Price elasticity (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1755534523000489
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eejocm:v:49:y:2023:i:c:s1755534523000489

DOI: 10.1016/j.jocm.2023.100447

Access Statistics for this article

Journal of choice modelling is currently edited by S. Hess and J.M. Rose

More articles in Journal of choice modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().