Abstract
We extend some of the methods Urban, Johnson and Hauser (1984) have developed to the problem of testing for the existence of competitive submarkets in a market. A submarket or a group of products is said to be competitive if consumers are statistically more likely to purchase again in that submarket than would be predicted using an aggregate constant ratio criterion. Unlike the ujh procedure, our method (1) identifies the specific submarkets that are competitive, (2) uses an appropriate one-sided multivariate likelihood ratio test to account for the correlation between the submarket statistics and to identify competitive submarkets over time, and (3) uses purchase probabilities estimated from behavioral data. Our application to the coffee market shows that the proposed method has substantial validity and confirms the presence of competitive submarkets.
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