A note on stochastic complementarity for the applied researcher

Alessandro Iaria and Ao Wang

Economics Letters, 2021, vol. 199, issue C

Abstract: In their discussion of stochastic complementarity, Manzini et al. (2018) show that the intuitively appealing correlation criterion does not—in general—satisfy the axiom of monotonicity: products classified as complements can turn into substitutes following an increase in their joint purchases. In this note, we show that, however, by restricting attention to mixed logit models along the lines of Gentzkow (2007)’s, one can prevent such violations.

Keywords: Complementarity; Demand for bundles; Mixed-logit model; Correlation; Monotonicity axiom (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:199:y:2021:i:c:s0165176521000082

DOI: 10.1016/j.econlet.2021.109731

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