Bias in Stochastic Binary Models of Brand Choice

In stochastic models of brand choice, a k-brand market (k>2) is generally reduced to a two-brand market by denoting the brand of interest as A and combining all other brands to form the “other brand” B. It is shown that (i) market share forecasts obtained from binary models are likely to be biased, and that (ii) binary models tend to underestimate the true order of the stochastic brand choice process.