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Commentary on structural modeling in marketing: review and assessment.

Article Excerpt
Chintagunta, Erdem, Rossi, and Wedel (2006) (CERW) discuss many different issues related to the use of structural models in marketing. They use examples of structural models that involve both consumer demand and supply-side competition to provide a critical assessment of the strengths and weaknesses of structural modeling and its future in marketing. While they have done a very nice job, the purpose of this commentary is to provide additional discussion of the three issues raised in their paper.

1. Strengths and Weaknesses of Structural Modeling

CERW observe that most structural models make strict parameterization and behavioral assumptions, and view this as a major weakness. I have two comments on this observation: First, parameterization is a way to approximate the demand surface or the nature of competition. As in reduced-form models, we can modify the functional specification to better fit the data, if necessary. With the availability of disaggregate data and the development of new estimation techniques, identification and computation burdens are further reduced, and less strict assumptions can be made in our models.

Second, I regard the fact that behavioral assumptions are explicitly laid out as a major strength. It makes the relationship between assumptions and estimation equations clear. This provides a direction for altering the model to match the specifics of a particular category (see a similar...

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