ABSTRACT – Consumers behave very differently when they do not have perfect information about all brands available on a shelf. In this paper I extend the benchmark discrete choice model of consumer demand to capture two distinct features of experience-goods markets: prior brand experience and shopping frequency. Although the current literature incorporates habit formation in consumer demand models, it has not considered a more fundamental question: how the first experience with a brand affects the consumer’s choice. I estimate the model using data on purchases of packaged orange juice, which comes from a new consumer level panel provided by a large supermarket chain in Brazil. I find that for this product prior experience of a brand is as important for a consumer’s choice as price. Furthermore, own-and cross-price elasticities change significantly when experience and shopping frequency are taken into account. My findings have implications for both firms’ strategies and for antitrust analysis related to experience-goods markets.
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