A Dynamic Choice Model of Hybrid Behavior in the Attribute-Space

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 simultaneously. 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 Classification: C35, D91, M39