A sequential choice model for multiple discrete demand

Sanghak Lee (), Sunghoon Kim () and Sungho Park ()
Additional contact information
Sanghak Lee: Arizona State University
Sunghoon Kim: Rutgers University
Sungho Park: Seoul National University

Quantitative Marketing and Economics (QME), 2022, vol. 20, issue 2, No 2, 178 pages

Abstract: Abstract Consumer demand in a marketplace is often characterized to be multiple discrete in that discrete units of multiple products are chosen together. This paper develops a sequential choice model for such demand and its estimation technique. Given an inherently high-dimensional problem to solve, a consumer is assumed to simplify it to a sequence of one-unit choices, which eventually leads to a shopping basket of multiple discreteness. Our model and its estimation method are flexible enough to be extended to various contexts such as complementary demand, non-linear pricing, and multiple constraints. The sequential choice process generally finds an optimal solution of a convex problem (e.g., maximizing a concave utility function over a convex feasible set), while it might result in a sub-optimal solution for a non-convex problem. Therefore, in case of a convex optimization problem, the proposed model can be viewed as an econometrician’s means for establishing the optimality of observed demand, offering a practical estimation algorithm for discrete optimization models of consumer demand. We demonstrate the strengths of our model in a variety of simulation studies and an empirical application to consumer panel data of yogurt purchase.

Keywords: Multiple discreteness; Sequential choice; Discrete optimization (search for similar items in EconPapers)
JEL-codes: C35 C51 C61 D12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11129-022-09250-9

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