The assumption that more-is-better doesn’t hold when consumers want to limit the amount they consume. High calorie meals frustrate dieting plans, food with high salt content may lead to bad health outcomes and large quantity purchases may not fit within available storage spaces. The assumption in economics that marginal utility is always positive may not apply in situations when purchase quantities take on a wide range and when consumers have ideal points and unobserved constraints on their choices. In this paper we develop a model and estimator for locally-rational demand that identifies un- observed constraints on choice by allowing marginal utility to be negative. The model is applied to conjoint data of buy-one-get-one (BOGO) promotions and a scanner panel dataset of milk purchases where the e↵ect of locally-rational demand is prevalent.

• Sanghak Lee(Arizona State University, USA)
• Taegyu Hur(Iowa State University, USA)
• Greg M. Allenby(Ohio State University, USA)