The price consideration model of brand choice
Article first published online: 3 MAR 2009
Copyright © 2009 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Special Issue: New Econometric Models in Marketing
Volume 24, Issue 3, pages 393–420, April/May 2009
How to Cite
Ching, A., Erdem, T. and Keane, M. (2009), The price consideration model of brand choice. J. Appl. Econ., 24: 393–420. doi: 10.1002/jae.1053
- Issue published online: 3 MAR 2009
- Article first published online: 3 MAR 2009
- NSF. Grant Numbers: SBR-9511280, SBR-9812067
- ARC. Grant Number: FF0561843
The workhorse brand choice models in marketing are the multinomial logit (MNL) and nested multinomial logit (NMNL). These models place strong restrictions on how brand share and purchase incidence price elasticities are related. In this paper, we propose a new model of brand choice, the “price consideration” (PC) model, that allows more flexibility in this relationship. In the PC model, consumers do not observe prices in each period. Every week, a consumer decides whether to consider a category. Only then does he/she look at prices and decide whether and what to buy. Using scanner data, we show the PC model fits much better than MNL or NMNL. Simulations reveal the reason: the PC model provides a vastly superior fit to inter-purchase spells. Copyright © 2009 John Wiley & Sons, Ltd.