Executive Summary:
We develop a model of store choice and category purchase quantity in which the customer may buy from different types of stores. The two types are low-priced stores (where the customer incurs a non-zero fixed cost but can buy at low item prices) and convenient stores (where the customer incurs negligible fixed cost but must pay higher item prices). In contrast to previous models, our model recognizes that customers plan ahead; it is dynamic and incorporates long-run shopping costs. Additionally, we allow consumers to tailor their purchases to the type of store they choose. We find that shoppers accelerate their purchases when they choose lowpriced stores. Analysis of our model results in a new theory of store choice and purchase quantity decisions. This theory describes shopping behavior in terms of at most three household-level parameters. Consumers select stores and determine category purchase quantities on the basis of simple differences between these parameters and current household inventory levels. We also conducted an econometric analysis to compare our theory to the prevailing store choice theory. We show that our model explains consumer shopping behavior better than the prevailing theory both in and out of sample, despite using fewer statistical parameters and simpler statistical constructs.
Key Words: Retail, Inventory, Store Choice, Shopping Behavior, Consumer Behavior, Tobit. |
