Bundle Choice with Limited Consideration: An Application to Yogurt Markets (Job market paper)

Abstract

I combine complementarity in bundle choice and consideration set of products into a demand model for differentiated products. I show identification of consideration prob- abilities from the asymmet- ric demand even when only marginal market shares of products, not bundle options, are observed. I apply the model to the yogurt market with consumer-level and store-level data to quantify the comple- mentarity and the degree of limited consideration. I tailor a novel estimation approach that features efficiency gain via combining the loglikelihood of consumer choices and market shares with moment conditions to my empirical application. I find a considerable demand synergy in the bundle of dif- ferent products and a significant proportion of consumer inertia, defined here as choosing from the last purchases, in consumer demand for yogurt. Compared to the standard discrete choice model, my estimation results suggest that accounting for complementarity between products and consumers’ limited consideration set can substantially affect price competition analysis.