Multiproduct Firms, Information, and Loyalty * Multiproduct Firms, Information, and Loyalty

This study provides evidence that the portfolio of products offered by a multiproduct firm affects consumer purchase decisions with respect to each of its products. We present a theory that explains this empirical regularity. The theory involves revising the information set of consumers to include the profile of multiproduct firms. We show that revising the information set in this way introduces a new source of consumer loyalty and explains interesting empirical regularities concerning consumer behavior. For example, the consumer is loyal to a multiproduct firm even at times that it does not offer a product that matches her preferences better than competing firms. Our model also offers a parsimonious way of thinking about brand extension strategies and maps new channels of spillovers within a multiproduct firm. We estimate the model and test its implications using panel data on television viewing choices. The estimated model also allows for state dependence parameters and unobserved heterogeneity. The empirical results support the model and its implications. Finally, we illustrate the empirical bias in standard choice models that do not structure the information set as suggested here.