The Inverse Product Differentiation LogitModel

Mogens Fosgerauy, Julien Monardoz and André de Palma ()
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André de Palma: Université de Cergy-Pontoise, THEMA

No 2023-17, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

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 variables 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 cereals market.

JEL-codes: C26 D11 D12 L (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com and nep-dcm
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2023-17

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