Blurred boundaries: a flexible approach for segmentation applied to the car market
Laura Grigolon ()
Department of Economics Working Papers from McMaster University
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.
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2017-17
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