Demand Estimation with Social Interactions and the Implications for Targeted Marketing

The role that social interactions play in the purchase decisions of consumers is of growing interest to marketers. Consumers' decisions not only depend on information they receive from others, but also on the decisions made by other members of their social group. However, the extension of choice models to incorporate a peer's choice forces the modeler to confront a variety of empirical challenges in separating out correlated behavior within a group from actual causal social interactions within a group. Furthermore, even if causal social interactions exist, estimation of the effect of a peer's decision on a consumer is complicated by the fact that peers often coordinate decisions. This paper defines an empirical equilibrium model with a flexible heterogeneity structure to confront these challenges of modeling demand from groups of consumers. To validate the model and explore implications for marketing mix decisions, we apply it to a data set of golfers who frequently pla...

• Type: Journal
• Year: 2010
• Where: MKTSCI
• Authors: Wesley R. Hartmann
• Keywords: Group, Marketing, MKTSCI 2010, Multimedia, Social Interaction