State dependence and alternative explanations for consumer inertia

Abstract

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. We show that the finding of inertia is robust to flexible controls for preference heterogeneity and not due to autocorrelated taste shocks. We explore three economic explanations for the observed structural state dependence: preference changes due to past purchases or consumption experiences which induce a form of loyalty, search, and learning. Our data are consistent with loyalty, but not with search or learning. This distinction is important for policy analysis, because the alternative sources of inertia imply qualitative differences in firm's pricing incentives and lead to quantitatively different equilibrium pricing outcomes. Copyright (c) 2010, RAND.

Enemies of cloud services usage: inertia and switching costs

“…These switching costs create an exit barrier and result in customers continuing to buy or use the product or service, even in a context of dissatisfaction. According to previous research, if inertia is explained by these costs, it simply creates spurious loyalty (Dubé et al 2010). In this case, consumers or users react to price promotions and change their shopping behavior by trying out a new brand or product (Ray and Seo 2013).…”

“…Different sources of inertia have been suggested based on different types of costs: search, learning, and psychological costs (Farrell and Klemperer 2007). However, only when psychological costs are behind inertia, can it be consistent with loyalty (Dubé et al 2010). These psychological costs are created through past positive consumer experience, in other words, through satisfaction with the current brand, product, or working system (Ray and Seo 2013).…”

“…According to Dubé et al (2010), researchers should analyze whether inertia can be considered a driver of loyalty or not and, therefore, whether it generates structural state dependence. In order to answer this question, they suggested that researchers should look into its possible sources.…”

“…Inertial individuals avoid variety-seeking behavior (Chintagunta 1998) and this behavior results in an aversion to innovations (Dong and Saha 1998;Jayawardhena and Foley 2000;Patsiotis et al 2013). Although some authors have included inertia in their studies about intentions of continued IT usage or about non-adoption behavior little research has paid attention to analyzing the mechanisms that develop this behavior (Dubé et al 2010;Ray and Seo 2013). Depending on how this behavior arises, inertia may create real or spurious loyalty, which may influence the likelihood of adopting one new IT system from among competing systems.…”

A new multivariate count data model to study multi-category physician prescription behavior

“…These values are listed in Table 11. Following Dubé et al (2010), we calculated the Log Marginal Likelihood values using a NewtonRaftery style estimator, after trimming the top and bottom 1% of the likelihood values. They show that our model fits the data the best.…”