A Direct Utility Model for Asymmetric Complements

Authors:
Sanghak Lee;Jaehwan Kim;Greg M. Allenby
Affiliations:
Tippie College of Business, University of Iowa, Iowa City, Iowa 52242;Korea University Business School, Korea University, Seoul 136-701, Korea;Fisher College of Business, Ohio State University, Columbus, Ohio 43210
Venue:
Marketing Science
Year:
2013

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Abstract

A symmetric complements refer to goods where one good is more dependent on the other, yet consumers receive enhanced utility from consuming both. Examples include garden hoses and sprinklers, chips and dip, and routine versus personalized services where the former has a broader base for utility generation and the latter is more dependent on the other's presence. Measuring asymmetric effects is difficult when all that is observed are the purchase quantities present in a consumer's market basket. We propose a direct utility model with a latent decision sequence for measuring asymmetric effects that allows us to capture differential responses to cross-category purchases and inventories. Scanner panel data of milk and cereal purchases are used to investigate the presence of asymmetric complementarity, and implications are explored through counterfactual analyses involving cross-price elasticities and spillover effects of merchandising variables.