A Modified Linear Learning Model of Buyer Behavior

Gary L. Lilien
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Gary L. Lilien: Massachusetts Institute of Technology

Management Science, 1974, vol. 20, issue 7, 1027-1036

Abstract: A stochastic model of individual buyer behavior is developed from a set of postulates about the buying process. The postulates are shown to imply a linear learning model modified by a term to explain response to pricing stimuli. Thus, a customer's purchasing probability is modelled as a combination of the effect of his past purchasing behavior plus the effect of price-variation in the market. Methods are developed to calculate short- and long-term probabilistic properties of the process. A method for parameter estimation is included. The model differs from past modelling efforts in this area in that a controllable variable, product price, is explicitly included in the model-structure, allowing the model to be used to aid in pricing decision making under a certain set of assumptions about competitive behavior in a market situation.

Date: 1974
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:20:y:1974:i:7:p:1027-1036

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