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Blurred boundaries: A flexible approach for segmentation applied to the car market

Laura Grigolon ()

Quantitative Economics, 2021, vol. 12, issue 4, 1273-1305

Abstract: Prominent features of differentiated product markets are segmentation and product proliferation blurring the boundaries between segments. I develop a tractable demand model, the Ordered Nested Logit, which allows for asymmetric substitution between segments. I apply the model to the automobile market where segments are ordered from small to luxury. I find that consumers, when substituting outside their vehicle segment, are more likely to switch to a neighboring segment. Accounting for such asymmetric substitution matters when evaluating the impact of new product introduction or the effect of subsidies on fuel‐efficient cars.

Date: 2021
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https://doi.org/10.3982/QE1434

Related works:
Working Paper: Blurred boundaries: a flexible approach for segmentation applied to the car market (2021) Downloads
Working Paper: Blurred Boundaries: A Flexible Approach for Segmentation Applied to the Car Market (2019) Downloads
Working Paper: Blurred boundaries: a flexible approach for segmentation applied to the car market (2017) Downloads
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