Earthquakes and Brand Loyalty: Beyond the Short-Term Effects of Stockouts

Abstract

We exploit a natural experiment that exogenously removed the top leading brands of beer from the retail stores for several weeks to test whether prolonged stockouts can erode market shares persistently and study the potential mechanisms at play. Using panel data of consumer purchases before and after the product shortage, we observe that the top brands only partially recovered their pre-stockout market shares, especially among their most frequent buyers. Moreover, we identify a sizable portion of consumers who tried some small brands for the first time during the stockout period and remained buying those products persistently. We estimate a choice model with heterogeneous preferences to control for prices, state dependence, and product availability and find that the exposure to stockouts has long-run effects in purchase behavior. We interpret our estimates as evidence that consumers facing a restricted choice set may become aware or learn about competing products with long-lasting consequences in terms of their preferences.