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Hruschka, Harald

Endogeneity of marketing variables in multicategory choice models

Article

Hruschka, Harald (2023) Endogeneity of marketing variables in multicategory choice models. Journal of Business Economics 94, pp. 639-657.

DOI to cite this document: 10.5283/epub.54767


Abstract

A regressor is endogenous if it is correlated with the unobserved residual of a model. Ignoring endogeneity may lead to biased coefficients. We deal with the omitted variable bias that arises if firms set marketing variables considering factors (demand shocks) that researchers do not observe. Whereas publications on sales response or brand choice models frequently take the potential endogeneity ...

A regressor is endogenous if it is correlated with the unobserved residual of a model. Ignoring endogeneity may lead to biased coefficients. We deal with the omitted variable bias that arises if firms set marketing variables considering factors (demand shocks) that researchers do not observe. Whereas publications on sales response or brand choice models frequently take the potential endogeneity of marketing variables into account, multicategory choice models provide a different picture. To consider endogeneity in multicategory choice models, we follow a two-step Gaussian copula approach. The first step corresponds to an individual-level random coefficient version of the multivariate logit model. We analyze yearly shopping data for one specific grocery store, referring to 29 product categories. If the assumption of a Gaussian correlation structure is met, the copula approach indicates the endogeneity of a category-specific marketing variable in about 31% of the categories. The majority of marketing variables rated as endogenous are positively correlated with the omitted variable, implying that ignoring endogeneity leads to an overestimation of the coefficients of the respective marketing variable. Finally, we investigate whether taking endogeneity into account by the copula approach leads to different managerial implications. In this regard, we demonstrate that for our data ignoring endogeneity often suggests a level of marketing activity that is too high.



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Details

Item typeArticle
Journal or Publication TitleJournal of Business Economics
PublisherSpringer
Open Access TypeDEAL (Springer)
Volume94
Page Rangepp. 639-657
Date25 September 2023
Date of publication05 Oct 2023 10:46
InstitutionsBusiness, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Marketing (Prof. Dr. Harald Hruschka)
Identification Number
ValueType
10.1007/s11573-023-01179-zDOI
Classification
NotationType
M31 - L81 - D1 - C35Journal of Economics Literature Classification
KeywordsMarketing · Retailing · Multicategory choice · Market basket analysis · Endogeneity
Dewey Decimal Classification300 Social sciences > 330 Economics
StatusPublished
RefereedYes, this version has been refereed
Created at the University of RegensburgYes
URN of the UB Regensburgurn:nbn:de:bvb:355-epub-547675
Item ID54767

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