William J. Allender

Social Networks and New Product Choice

Influential individuals in a social network environment are important in shaping preferences for new products. In this study, we adopt an incentive compatible choice-based conjoint analysis approach to generate data on the introduction of a new ice cream product. We use spatial econometric methods to determine how individuals are likely to change their preferences when exposed to the choices of other members in their social network. We find evidence that agents look to others for guidance in their preference for subjective or taste-specific parameters, but rely on own preferences for objectively measured attributes such as price. We also use spatial methods to determine which network-member is the most influential. We find that the most connected member is not necessarily the most influential, and that influence can be determined econometrically.

Rivalry in Price and Location by Differentiated Product Manufacturers

In this article, we estimate a model of strategic rivalry between food manufacturers in product design and pricing. We derive a spatial structural model in which food manufacturers jointly select prices and the optimal attribute composition of their product lines. We find that manufacturers have an incentive to locate yogurt products nearby others in attribute space and that products with the most similar attribute compositions enjoy the widest price-cost margins. Our findings explain the observation that most consumer package goods tend to be very similar, yet manufacturers appear to earn above-normal profits. Copyright 2013, Oxford University Press.

Demand for Variety and Product Uncertainty: A Structural Model of Consideration Set Formation

Many consumer demand situations exist in which individuals have a preference for variety that leads to multiple products being chosen. For example, clothing, food, books, and music are regularly purchased several items at a time. Prior to a purchase decision consumers face product uncertainty that is resolved through a costly search process that is implicitly affected by their demand for variety. Despite the prevalence of both product uncertainty and a preference for variety both topics are often studied in isolation from each other. In this paper we propose a general demand framework of endogenous consideration set formation in the presence of variety seeking behavior that accommodates a mixture of corner and interior solutions. Using a closed form expression of the model we analyze simulated data and a scanner-panel data set of laundry detergent purchases and find that ignoring either variety or uncertainty leads to biased parameter estimates and inaccurate consideration set size predictions. Using the laundry detergent results we simulate the elasticity of search and find some brands can significantly increase the likelihood of being searched with minor price reductions, while other brands require significantly more effort.

Consumers Search and the Choice Overload Hypothesis

In this paper we use an experimental approach to study the relationship between the number of products presented to a consumer and their subsequent search and purchase behavior. By imposing a search cost, and a preference for variety, we induce search behavior in the presence of a preference for variety that leads the participants to make both single, and multiple-purchase decisions. This paper shows that the ability to shop more efficiently allows consumers to focus on finding products that meet their exact specifications in differentiated product categories. With uncertainty over product attributes, no single choice stands out as a clear favorite a priori, so utility rises the more choices are available, but at a decreasing rate. We find that as the size of the consideration set grows, consumers search less and are more apt to purchase, but this effect is highly non-linear. Beyond a certain point, search expands as consumers become unwilling to choose. Retailers can increase the assortment available to persuade a consumer to patronize their store and avoid searching another. However, this does not increase without bound. Eventually, a consumer will be overwhelmed by the number of products offered and search the other store as well, or possibly instead. The degree to which consumers are overburdened by the variety offered exhibits significant heterogeneity among consumers.