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The paper analyzes stockouts resulting from hurricanes to study whether consumers are persistent in their brand choices. We analyze structural state dependence in brand choice using variation from brand switching during stockouts caused by hurricanes. We derive a simple test for structural state dependence based on the time series of choice persistence for households affected by the stockouts. Using data from the bottled water category, we show that demand increases substantially before hurricanes, causing households to purchase different brands. We find that purchase behavior reverts back to its pre-hurricane trajectory immediately after a hurricane, and we are not able to reject the null hypothesis of no structural state dependence. By contrast, the common approach of estimating structural state dependence based on temporal price variation via a discrete choice model yields a positive effect using data for the same category. We argue that our approach is better suited to identify the causal impact of past choices because it requires fewer assumptions and is based on more plausibly exogenous variation in brand switching resulting from stockouts. History: Avi Goldfarb served as the senior editor and Günter Hitsch served as associate editor for this article. Supplemental Material: The data files are available at https://doi.org/10.1287/mksc.2022.1415. [ABSTRACT FROM AUTHOR]

This paper studies the effect of e-cigarette advertising on demand for tobacco cigarettes and finds that a proposed ban on e-cigarette advertising could have unintended consequences. Although TV advertising for traditional cigarettes has been banned since 1971, advertising for e-cigarettes remains unregulated. The effects of e-cigarette ads have been heavily debated, but empirical analysis of the market has been limited. Analyzing both individual and aggregate data, I present descriptive evidence showing that e-cigarette advertising reduces demand for traditional cigarettes and that individuals treat e-cigarettes and traditional cigarettes as substitutes. I then specify a structural model of demand for cigarettes that incorporates addiction and allows for heterogeneity across households. The model enables me to leverage the information content of both data sets to identify variation in tastes across markets and the state dependence induced on choice by addiction. Using the demand model estimates, I evaluate the impact of a proposed ban on e-cigarette television advertising. I find that in the absence of e-cigarette advertising, demand for traditional cigarettes would increase, suggesting that a ban on e-cigarette advertising may have unintended consequences. [ABSTRACT FROM AUTHOR]

Addiction creates an intertemporal link between a consumer's past and present decisions, altering their responsiveness to price changes relative to nonaddictive products. We construct a dynamic model of rational addiction and endogenous consumption to investigate how consumers respond to policy interventions that aim to reduce purchases of cigarettes. We find that, on average, the category elasticity is about 35% higher when the model correctly accounts for addiction. However, some policies spur substitution from more expensive single packs to less expensive cartons of cigarettes, resulting in higher overall consumption for some consumers. [ABSTRACT FROM AUTHOR]

In recent years academic research has focused on understanding and modeling the survey response process. This paper examines an understudied systematic response tendency in surveys: the extent to which observed responses are subject to state dependence, i.e., response carryover from one item to another independent of specific item content. We develop a statistical model that simultaneously accounts for state dependence, item content, and scale usage heterogeneity. The paper explores how state dependence varies by response category, item characteristics, item sequence, respondent characteristics, and whether it becomes stronger as the survey progresses. Two empirical applications provide evidence of substantial and significant state dependence. We find that the degree of state dependence depends on item characteristics and item sequence, and it varies across individuals and countries. The article demonstrates that ignoring state dependence may affect reliability and predictive validity, and it provides recommendations for survey researchers. [ABSTRACT FROM AUTHOR]

In recent years there has been a growing stream of literature in marketing and economics that models consumers as Bayesian learners. Such learning behavior is often embedded within a discrete choice framework that is then calibrated on scanner panel data. At the same time, it is now accepted wisdom that disentangling preference heterogeneity and state dependence is critical in any attempt to understand either construct. We posit that this confounding between state dependence and heterogeneity often carries through to Bayesian learning models. That is, the failure to adequately account for preference heterogeneity may result in over- or underestimation of the learning process because this heterogeneity is also reflected in the initial conditions. Using a unique data set that contains stated preferences (survey) and actual purchase data (scanner panel) for the same group of consumers, we attempt to untangle the effects of preference heterogeneity and state dependence, where the latter arises from Bayesian learning. Our results are striking and suggest that measured brand beliefs can predict choices quite well and, moreover, that in the absence of such measured preference information, the Bayesian learning behavior for consumer packaged goods is vastly overstated. The inclusion of preference information significantly reduces evidence for aggregate-level learning and substantially changes the nature of individual-level learning. Using individual-level outcomes, we illustrate why the lack of preference information leads to faulty inferences. [ABSTRACT FROM AUTHOR]

There is substantial literature documenting the presence of state-dependent utility with packaged goods data. Typically, a form of brand loyalty is detected whereby there is a higher probability of purchasing the same brand as has been purchased in the recent past. The economic significance of the measured loyalty remains an open question. We consider the category pricing problem and demonstrate that the presence of loyalty materially affects optimal pricing. The prices of higher quality products decline relative to those of lower quality when loyalty is introduced into the model. Given the well-known problems with the confounding of state dependence and consumer heterogeneity, loyalty must be measured in a model which allows for an unknown and possibly highly nonnormal distribution of heterogeneity. We implement a highly flexible model of heterogeneity using multivariate mixtures of normals in a hierarchical choice model. We use an Euler equations approach to the solution of the dynamic pricing problem which allows us to consider a very large number of consumer types. [ABSTRACT FROM AUTHOR]

We propose a utility-theoretic brand-choice model that accounts for four different sources of state dependence: 1. effects of lagged choices (structural state dependence), 2. effects of serially correlated error terms in the random utility function (habit persistence type 1), 3. effects of serial correlations between utility-maximizing alternatives on successive purchase occasions of a household (habit persistence type 2), and 4. effects of lagged marketing variables (carryover effects ). Our proposed model also allows habit persistence to be a function of lagged marketing variables, while accommodating the effects of unobserved heterogeneity in household choice parameters. This model is more flexible than existing state-dependence models in marketing and labor econometrics. Using scanner panel data, we find structural state dependence to be the most important source of state dependence. Marketing-mix elasticities are systematically understated if state-dependence effects are incompletely accounted for. The Seetharaman and Chintagunta (1998) model is shown to recover spurious variety-seeking effects while overstating habit-persistence effects. Ignoring habit persistence type 1 leads to an underestimation, while ignoring habit persistence type 2 leads to an overestimation of structural state-dependence effects. We find lagged promotions to have carryover effects on habit persistence. Ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion. We draw implications for manufacturer pricing. [ABSTRACT FROM AUTHOR]

Marketing researchers and practitioners are interested in a specific aspect of persistence--brand loyalty (repeat-purchase), because of its managerial consequences. This study focuses on the stronger form of loyalty, in which although firms offer a new product in each period, consumers continue to purchase from the same firm. Repeat-purchase might result from state dependence or from heterogeneity. State dependence means that current choices behaviorally depend on previous ones (which is the state). This study shows that existing explanations of state dependence are incomplete, presents another source and demonstrates how a researcher can distinguish between the two sources of state dependence with standard panel data. Section 2 presents two choice models: the utility state dependence model (UM). Using panel data on television viewing choices in the US (presented in section 3) and structural estimation (described in section 4), the authors show in section 5 that the data provide solid support for the information state dependence model (IM). [ABSTRACT FROM AUTHOR]