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

Laura Grigolon ()

Department of Economics Working Papers from McMaster University

Abstract: Prominent features of differentiated product markets are segmentation and product proliferation that blurs the boundaries between segments. I develop a tractable demand model,the Ordered Nested Logit, which allows for over lap between neighboring 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 a symmetric substitution matters when evaluating the impact of new product introduction or studying the effect of subsidies on fuel-efficient cars.

New Economics Papers: this item is included in nep-com, nep-ene and nep-tre
Date: 2017-11-30
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