The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products

Peter Davis () and Pasquale Schiraldi ()

RAND Journal of Economics, 2014, vol. 45, issue 1, 32-63

Abstract: type="main">

We show FC-MNL is flexible in the sense of Diewert ([Diewert, E., 1974]), thus its parameters can be chosen to match a well-defined class of possible own- and cross-price elasticities of demand. In contrast to models such as Probit and Random Coefficient-MNL models, FC-MNL does not require estimation via simulation; it is fully analytic. Under well-defined and testable parameter restrictions, FC-MNL is shown to be an unexplored member of McFadden's class of Multivariate Extreme Value discrete-choice models. Therefore, FC-MNL is fully consistent with an underlying structural model of heterogeneous, utility-maximizing consumers. We provide a Monte-Carlo study to establish its properties and we illustrate its use by estimating the demand for new automobiles in Italy.

Date: 2014
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Working Paper: The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products (2014)
Working Paper: The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products (2013)
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