Paper #589

Title:

A dynamic choice model of hybrid behavior in the attribute-space

Author:

Antonio Ladrón de Guevara

Date:

November 2001

Abstract:

This paper presents a dynamic choice model in the attribute space considering rational consumers that discount the future. In light of the evidence of several state-dependence patterns, the model is further extended by considering a utility function that allows for the different types of behavior described in the literature: pure inertia, pure variety seeking and hybrid. The model presents a stationary consumption pattern that can be inertial, where the consumer only buys one product, or a variety-seeking one, where the consumer buys several products simultane-ously. Under the inverted-U marginal utility assumption, the consumer behaves inertial among the existing brands for several periods, and eventually, once the stationary levels are approached, the consumer turns to a variety-seeking behavior. An empirical analysis is run using a scanner database for fabric softener and significant evidence of hybrid behavior for most attributes is found, which supports the functional form considered in the theory.

Keywords:

Consumer choice models, state-dependence models, consumption patterns, variety seeking, hybrid behavior

JEL codes:

C35, D91, M39

Area of Research:

Business Economics and Industrial Organization

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