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Brand and Quantity Choice Dynamics Under Price Uncertainty

Tulin Erdem (), Susumu Imai and Michael Keane ()

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations. Our framework accounts for how inventories and expectations of future prices affect current period purchase decisions. We estimate our model using scanner data for the ketchup category. Our results indicate that price expectations and the nature of the price process have important effects on demand elasticities. Long-run cross price elasticities of demand are more than twice as great as short-run cross price elasticities. Temporary price cuts (or ‘‘deals’’) primarily generate purchase acceleration and category expansion, rather than brand switching.

Keywords: price expectations; pricing; scanner data; dynamic programming; simulation; discrete choice; stock piling; inventories (search for similar items in EconPapers)
JEL-codes: C15 C35 C61 D1 D12 D8 M3 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (192)

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