Intertemporal aggregation of heterogeneous consumers

Abstract

This paper deals with a relatively unexamined facet of stochastic brand switching models — their connection to market share models. We derive a composite market share model based on aggregation of heterogeneous Markovian type individuals each purchasing a brand from the product class several times during the period of analysis. The characteristics of this composite model are examined and interestingly suggest a Markov type market share model. Moreover, this examination sheds some light on a phenomenon uncovered in econometric studies of market share response to advertising - the slow decay of the lagged market share term as the length of the measurement period is increased.