A Random-Coefficients Logit Brand-Choice Model Applied to Panel Data

A random-coefficients logit model that allows for unobserved heterogeneity in brand preferences and in the responses to marketing variables is empirically investigated using household-level panel data. The unknown underlying distribution of unobserved heterogeneity is approximated by a discrete distribution. The results reveal that there is significant unobserved heterogeneity across households and that ignoring its effects results in a downward bias in the parameter estimates of the marketing variables. It is therefore important to account for heterogeneity in both preferences and responses in the absence of any a priori knowledge about the nature of heterogeneity across households.