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Brand and Quantity Choice Dynamics Under Price Uncertainty

Publication Date
  • C15 - Statistical Simulation Methods: General
  • C35 - Discrete Regression And Qualitative Choice Models
  • Discrete Regressors
  • Proportions
  • C61 - Optimization Techniques
  • Programming Models
  • Dynamic Analysis
  • D1 - Household Behavior And Family Economics
  • D12 - Consumer Economics: Empirical Analysis
  • D8 - Information
  • Knowledge
  • And Uncertainty
  • M3 - Marketing And Advertising
  • Mathematics


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.

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