Demand Analysis under Price Rigidity and Endogenous Assortment: An Application to China's Tobacco Industry

Hui Liu and Yao Luo

Papers from arXiv.org

Abstract: We observe nominal price rigidity in tobacco markets across China. The monopolistic seller responds by adjusting product assortments, which remain unobserved by the analyst. We develop and estimate a logit demand model that incorporates assortment discrimination and nominal price rigidity. We find that consumers are significantly more responsive to price changes than conventional models predict. Simulated tax increases reveal that neglecting the role of endogenous assortments results in underestimations of the decline in higher-tier product sales, incorrect directional predictions of lower-tier product sales, and overestimation of tax revenue by more than 50%. Finally, we extend our methodology to settings with competition and random coefficient models.

Date: 2025-01
New Economics Papers: this item is included in nep-cna, nep-com and nep-dcm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2501.17251 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2501.17251

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().