Estimation of Store Choice Model with Endogenous Shopping Bundles

Abstract

We develop a structural model of retail store choices for which household shopping plans and price beliefs are endogenously determined. In our model individual households make their store choices based on their expected basket costs, which are determined by their shopping plans and price beliefs. Previous studies use realized purchases as a proxy for unobserved shopping lists and also assume homogenous price expectation across all households over the entire sample period. Our approach improves the measures of expected basket costs by estimating intended shopping lists of households using a duration model and also by constructing household-, time-, store-, and goods-specific price expectations. In our empirical application using a scanner data set, we find that the store choices become significantly more elastic to prices when the correction is applied.