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Brand and Quantity Choice Dynamics Under Price Uncertainty

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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.

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Authors and Affiliations

  1. Haas School of Business, University of California, Berkeley, Berkeley, CA, 94720-1900

    Tülin Erdem

  2. Department of Economics, Concordia University, 1455 de Maisonneuve Blvd, West, Montreal, QC, Canada, H3G 1M8

    Susumu Imai

  3. Department of Economics, Yale University, 37 Hillhouse Ave, New Haven, CT, 06511

    Michael P. Keane

Authors
  1. Tülin Erdem
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  2. Susumu Imai
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  3. Michael P. Keane
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Correspondence to Tülin Erdem.

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Erdem, T., Imai, S. & Keane, M.P. Brand and Quantity Choice Dynamics Under Price Uncertainty. Quantitative Marketing and Economics 1, 5–64 (2003). https://doi.org/10.1023/A:1023536326497

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