Panel data analysis of household brand choices

The paper examines theoretical and empirical issues arising in panel data studies of household brand choices. We develop a dynamic utility maximization model with habit formation that yields a discrete choice model that is linear in a vector of observable individual and brand characteristics, the lagged choice, an unobservable permanent individual/brand-specific effect, and an unobservable time-varying error component. We estimate the model using panel data on household yogurt purchases. We compare traditional estimation procedures with the method recently proposed by Honoré and Kyriazidou. Panel data discrete choice models with lagged dependent variables, Econometrica 68 839–874. The methods’ robustness with respect to underlying assumptions is investigated in Monte Carlo simulations.