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A sequential choice model for multiple discrete demand

Author

Listed:
  • Sanghak Lee

    (Arizona State University)

  • Sunghoon Kim

    (Rutgers University)

  • Sungho Park

    (Seoul National University)

Abstract

Consumer demand in a marketplace is often characterized to be multiple discrete in that discrete units of multiple products are chosen together. This paper develops a sequential choice model for such demand and its estimation technique. Given an inherently high-dimensional problem to solve, a consumer is assumed to simplify it to a sequence of one-unit choices, which eventually leads to a shopping basket of multiple discreteness. Our model and its estimation method are flexible enough to be extended to various contexts such as complementary demand, non-linear pricing, and multiple constraints. The sequential choice process generally finds an optimal solution of a convex problem (e.g., maximizing a concave utility function over a convex feasible set), while it might result in a sub-optimal solution for a non-convex problem. Therefore, in case of a convex optimization problem, the proposed model can be viewed as an econometrician’s means for establishing the optimality of observed demand, offering a practical estimation algorithm for discrete optimization models of consumer demand. We demonstrate the strengths of our model in a variety of simulation studies and an empirical application to consumer panel data of yogurt purchase.

Suggested Citation

  • Sanghak Lee & Sunghoon Kim & Sungho Park, 2022. "A sequential choice model for multiple discrete demand," Quantitative Marketing and Economics (QME), Springer, vol. 20(2), pages 141-178, June.
    • Handle: RePEc:kap:qmktec:v:20:y:2022:i:2:d:10.1007_s11129-022-09250-9
    DOI: 10.1007/s11129-022-09250-9
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    References listed on IDEAS

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    Cited by:

    1. Hung Tran & Tien Mai, 2023. "Network-based Representations and Dynamic Discrete Choice Models for Multiple Discrete Choice Analysis," Papers 2306.04606, arXiv.org.

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    More about this item

    Keywords

    Multiple discreteness; Sequential choice; Discrete optimization;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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