Instability in mixed logit demand models

Daniel McFadden

Journal of choice modelling, 2022, vol. 43, issue C

Abstract: When a mixed logit demand model is used to estimate market-clearing prices, the high influence of the left tail of the random price coefficient can lead to numerical and statistical instability. I show this is an issue with any mixing distribution whose price coefficient is not bounded away from zero. I give conditions under which market equilibrium prices implied by mixed logit models exist, and show they are satisfied for lognormal mixing and some cases of truncated normal mixing. However, even when market equilibria exist, these models can be unstable and produce statistically unreliable and economically implausible conclusions.

Keywords: Mixed logit; Market simulation (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eejocm:v:43:y:2022:i:c:s1755534522000112

DOI: 10.1016/j.jocm.2022.100353

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