Nonparametric Estimation of Demand with Switching Costs: the Case of Habitual Brand Loyalty

Xinyao Kong, Jean-Pierre H. Dubé and Øystein Daljord

No 32994, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study habitual brand loyalty, one of the earliest empirically-studied forms of switching costs and a classic source of structural state-dependence in consumer demand. Auxiliary instruments and economically-motivated restrictions can tighten nonparametric bounds on the extent of brand loyalty in choice panel data. We also prove that the canonical dynamic discrete-choice model, nested in our nonparametric framework, has “built-in” exclusion restrictions that semiparametrically identify the discount factor, in general, and point identify it for standard parameterizations of switching costs. Case studies of several large consumer goods categories show that brand loyalty accounts for at least 10.8% but no more than 72.2% of the observed choices across categories studied. In some categories, it accounts for over 90% of observed repeat-purchase behavior. Consumers are found to be forward-looking, but more impatient than would be implied by the real rate of interest.

JEL-codes: D11 D12 L66 M3 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-dcm and nep-ind
Note: IO
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32994.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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:nbr:nberwo:32994

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32994
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().