Endogeneity in Brand Choice Models

Applications of random utility models to scanner data have been widely presented in marketing for the last 20 years. One particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility (price, prom...

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Bibliographic Details
Published in:Management science 1999-10, Vol.45 (10), p.1324-1338
Main Authors: Villas-Boas, J. Miguel, Winer, Russell S
Format: Article
Language:English
Subjects:
brand choice models
Brands
common demand shocks
Consumer behaviour
Consumer demand
Consumer preferences
Demand shocks
Economic models
endogeneity
Ketchup
limited dependent variables
Management science
Market prices
Market theory
Marketing
Marketing management
Mathematical models
Modeling
panel data
Price shocks
Pricing
Product choice
Product differentiation
Studies
Utility functions
Utility rates
Yogurt
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Summary:Applications of random utility models to scanner data have been widely presented in marketing for the last 20 years. One particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility (price, promotion, etc.) and the stochastic component or error term. In fact, marketing-mix variables, such as price, not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers. This work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data. Our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.45.10.1324