State Dependence and Preference Heterogeneity: The Hand of the Past on Breakfast Cereal Consumption
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By explicitly accounting for observed and unobserved taste heterogeneity, we investigate
state dependence in food consumption on household level. Positive state dependence,
which can be interpreted as a loyalty measure, implies habit persistence, whereas negative
state dependence implies variety-seeking behavior. Using ConsumerScan data for 2,717
households in Germany for a four-year period (2000 until 2003), we apply mixed multinomial
(random coefficient) logit models to analyze consumption behavior in the breakfast cereal
market. We find substantial heterogeneity between households: the majority of them express
some degree of positive state dependence, which depreciates over time. Merely a small
share of the households can be characterized as variety-seekers. The analysis sheds light
on the correlation between price sensitivity and loyalty. More state dependent households
seem to be more sensitive to price changes. By obtaining household-specific coefficients, we
are able to define each household´s position on the distribution of the parameters.
Comparing state dependence coefficients and two further loyalty measures (brand-runs and
repurchase probabilities), we observe a positive correlation between these, which underpins
the importance of the effect of prior consumption. As a diagnostic check, the unconditional
distributions of the parameters and the average of the distributions conditional on previous
choices are compared.