The Inverse Product Differentiation Logit Model

Mogens Fosgerau, Julien Monardo and André de Palma

American Economic Journal: Microeconomics, 2024, vol. 16, issue 4, 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.

JEL-codes: C25 D11 D12 L66 L81 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Inverse Product Differentiation Logit Model (2022)
Working Paper: The Inverse Product Differentiation Logit Model (2021)
Working Paper: The Inverse Product Differentiation Logit Model (2019)
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DOI: 10.1257/mic.20210066

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