State Dependence and Alternative Explanations for Consumer Inertia

48 Pages Posted: 29 Apr 2009 Last revised: 1 Oct 2022

See all articles by Jean-Pierre Dubé

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Günter J. Hitsch

University of Chicago - Booth School of Business

Peter E. Rossi

University of California, Los Angeles (UCLA) - Anderson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 2009

Abstract

For many consumer packaged goods products, researchers have documented a form of state dependence whereby consumers become "loyal" to products they have consumed in the past. That is, consumers behave as though there is a utility premium from continuing to purchase the same product as they have purchased in the past or, equivalently, there is a psychological cost to switching products. However, it has not been established that this form of state dependence can be identified in the presence of consumer heterogeneity of an unknown form. Most importantly, before this inertia can be given a structural interpretation and used in policy experiments such as counterfactual pricing exercises,alternative explanations which might give rise to similar consumer behavior must be ruled out. We develop a flexible model of heterogeneity which can be given a semi-parametric interpretation and rule out alternative explanations for positive state dependence such as autocorrelated choice errors, consumer search, or consumer learning.

Suggested Citation

Dube, Jean-Pierre H. and Hitsch, Guenter J. and Rossi, Peter E., State Dependence and Alternative Explanations for Consumer Inertia (April 2009). NBER Working Paper No. w14912, Available at SSRN: https://ssrn.com/abstract=1394819

Jean-Pierre H. Dube (Contact Author)

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Guenter J. Hitsch

University of Chicago - Booth School of Business ( email )

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Peter E. Rossi

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

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