DP16632 Identifying State Dependence in Brand Choice: Evidence from Hurricanes

Author(s): Julia Levine, Stephan Seiler
Publication Date: October 2021
Keyword(s): Brand Choice, Brand Loyalty, preference heterogeneity, State Dependence
JEL(s): D12, L81
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16632

We analyze structural state dependence in brand choice using variation from brand switching during stock-outs 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 stock-outs that requires fewer assumptions than most previous work. Using data from the bottled water category, we show that demand increases substantially around hurricane events and causes households to purchase different brands. We find that purchase behavior reverts back to its pre-hurricane trajectory immediately after the hurricane and we are not able to reject the null hypothesis of no structural state dependence. We show that our results are not driven by unusual purchases during the hurricane or context-specific purchase behavior.