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Research Note—A Cross-Category Model of Households' Incidence and Quantity Decisions

Marshall School of Business, University of Southern California, Los Angeles, California 90089
INSEAD-Singapore, 138676 Singapore
Jesse H. Jones Graduate School of Management, Rice University, Houston, Texas 77252
rkniraj{at}marshall.usc.edu
paddy.padmanabhan{at}insead.edu
seethu{at}rice.edu

This paper advances the literature on multicategory demand models by simultaneously handling more than one purchase decision of the household. We propose a two-stage bivariate logit model of incidence and quantity outcomes in multiple categories. Our results show that cross-category promotional spillovers are asymmetric between the two product categories of bacon and eggs. The total retail profit responds more to bacon price than to egg price. Promoting bacon is found to have a bigger impact on egg profit than the impact of egg promotion on bacon profit. We decompose (1) the total retail profits, as well as (2) the cross-category profit impact of a price promotion, into its two components, and find that (1) 23% (67%) of the total retail profit impact of a promotion on bacon (eggs) arises on account of quantity effects, and (2) 40% (33%) of the increase in egg (bacon) profit from promoting bacon (eggs) is on account of quantity effects.

Key Words: multicategory; multivariate choices; bivariate logit; incidence; quantity; basket data
History: Received: June 17, 2002;