American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The Inverse Product Differentiation Logit Model
American Economic Journal: Microeconomics
vol. 16,
no. 4, November 2024
(pp. 329–70)
Abstract
We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variable regression with market-level data. Furthermore, we provide Monte Carlo experiments comparing the IPDL model to the workhorse empirical models of the literature. Lastly, we demonstrate the empirical performance of the IPDL model using a well-known dataset on the ready-to-eat cereal market.Citation
Fosgerau, Mogens, Julien Monardo, and André de Palma. 2024. "The Inverse Product Differentiation Logit Model." American Economic Journal: Microeconomics, 16 (4): 329–70. DOI: 10.1257/mic.20210066Additional Materials
JEL Classification
- C25 Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis
- L66 Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
- L81 Retail and Wholesale Trade; e-Commerce
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