Guenter J. Hitsch

New: The Great Recession and Private Label Demand
Date Posted:Fri, 21 Nov 2014 09:42:17 -0600
We seek to determine how wealth and income influence the demand for private label (hereafter PL) products. In particular, we use the experience of the recent Great Recession to explore how larges changes in wealth and income affect the demand for private label products. Contrary to recent claims that the recession has sparked a sharp increase in Private Label demand, we find a long-term trend toward increasing acceptance of PL products that predates the Great Recession. There is little evidence that the Great Recession has changed the long-term trend. We link our panel data to store level data and establish that the PL trend is demand-based and does not stem from supply side factors such as pricing and availability. We exploit local variation in changes in housing values to estimate a wealth effect on private label demand. To estimate an income effect, we exploit variation in income across time for our panelists, controlling for local economic trends. We estimate significant but ...

REVISION: State Dependence and Alternative Explanations for Consumer Inertia
Date Posted:Wed, 14 Apr 2010 05:07:52 -0500
For many consumer packaged goods products, researchers have documented inertia in brand choice, a form of persistence whereby consumers have a higher probability of choosing a product that they have purchased in the past. Using data on margarine and refrigerated orange juice purchases, we show that the finding of inertia is robust to flexible controls for preference heterogeneity and not due to autocorrelated taste shocks. Thus, the inertia is at least partly due to structural, not spurious ...

REVISION: State Dependence and Alternative Explanations for Consumer Inertia
Date Posted:Wed, 25 Mar 2009 05:56:04 -0500
For many consumer packaged goods products, researchers have documented a form of state dependence in which consumers become "loyal" to products they have consumed in the past. That is, consumers behave as though there is a utility premium from continuing to purchase the same product as they have purchased in the past or, equivalently, there is a psychological cost to switching products. However, it as not been established that this form of state dependence can be identified in the presense of ...

REVISION: State Dependence and Alternative Explanations for Consumer Inertia
Date Posted:Wed, 18 Mar 2009 17:15:04 -0500
For many consumer packaged goods products, researchers have documented a form of state dependence in which consumers become "loyal" to products they have consumed in the past. That is, consumers behave as though there is a utility premium from continuing to purchase the same product as they have purchased in the past or, equivalently, there is a psychological cost to switching products. However, it as not been established that this form of state dependence can be identified in the presense of ...

REVISION: Do Switching Costs Make Markets Less Competitive?
Date Posted:Mon, 19 Jan 2009 17:19:13 -0600
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from ...

REVISION: Do Switching Costs Make Markets Less Competitive?
Date Posted:Tue, 01 Apr 2008 09:45:56 -0500
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from ...

New: Matching and Sorting in Online Dating
Date Posted:Sun, 30 Mar 2008 11:18:07 -0500
This paper studies the economics of match formation using a novel data set obtained from a major online dating service. Using detailed information on the users' attributes and interactions, we estimate a model of mate preferences. Based on the estimated preferences, we use the Gale-Shapley algorithm to predict the stable matches among the users of the dating site. Comparing the predicted and observed matching patterns, we find that the Gale-Shapley model explains the matches achieved by the ...

REVISION: Tipping and Concentration in Markets with Indirect Network Effects
Date Posted:Thu, 24 Jan 2008 18:35:19 -0600
This paper develops a framework to measure 'tipping' - the increase in a firm's market share dominance caused by indirect network effects. Our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects. In practice, this measure requires a model that can predict the counter-factual market concentration under different parameter values capturing the strength of indirect network effects. We build ...

REVISION: Tipping and Concentration in Markets with Indirect Network Effects
Date Posted:Mon, 21 Jan 2008 13:30:20 -0600
This paper develops a framework to measure 'tipping' - the increase in a firm's market share dominance caused by indirect network effects. Our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects. In practice, this measure requires a model that can predict the counter-factual market concentration under different parameter values capturing the strength of indirect network effects. We build ...

REVISION: Do Switching Costs Make Markets Less Competitive?
Date Posted:Sun, 12 Aug 2007 18:30:07 -0500
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from ...

REVISION: Category Pricing with State Dependent Utility
Date Posted:Sat, 09 Dec 2006 17:46:25 -0600
There is a substantial literature that documents 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 in the presence of loyalty and demonstrate that a retailer has an incentive to invest in building brand ...

REVISION: Do Switching Costs Make Markets Less Competitive?
Date Posted:Wed, 27 Sep 2006 08:45:20 -0500
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from ...

REVISION: Do Switching Costs Make Markets Less Competitive?
Date Posted:Tue, 13 Jun 2006 16:22:17 -0500
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from ...

REVISION: Category Pricing with State Dependent Utility
Date Posted:Tue, 06 Jun 2006 11:27:39 -0500
There is a substantial literature that documents 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 in the presence of loyalty and demonstrate that a retailer has an incentive to invest in building brand ...

New: What Makes You Click? - Mate Preferences and Matching Outcomes in Online Dating
Date Posted:Tue, 11 Apr 2006 16:06:34 -0500
This paper uses a novel data set obtained from an online dating service to draw inferences on mate preferences and to investigate the role played by these preferences in determining match outcomes and sorting patterns. The empirical analysis is based on a detailed record of the site users' attributes and their partner search, which allows us to estimate a rich preference specification that takes into account a large number of partner characteristics. Our revealed preference estimates ...

REVISION: Category Pricing with State Dependent Utility
Date Posted:Fri, 07 Apr 2006 11:37:56 -0500
There is a substantial literature that documents 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 in the presence of loyalty and demonstrate that a retailer has an incentive to invest in building brand ...

REVISION: Category Pricing with State Dependent Utility
Date Posted:Sat, 14 Jan 2006 17:20:13 -0600
There is a substantial literature that documents 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 in the presence of loyalty and demonstrate that a retailer has an incentive to invest in building brand ...

An Empirical Model of Advertising Dynamics
Date Posted:Mon, 31 Jan 2005 02:46:09 -0600
We develop a model of dynamic advertising and apply it to the problem of optimal advertising scheduling through time. In many industries we observe advertising pulsing, whereby firms systematically switch advertising on and off at a high-frequency. The previous literature has explained such patterns through an S-shaped sales response to advertising, and long-run effects of advertising on demand (advertising carry-over). We extend a discrete choice based demand system to allow for a threshold ...