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Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach

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  • Anderson, Simon P
  • de Palma, Andre
  • Thisse, Jacques-Francois

Abstract

The authors propose a specific characteristics framework in order to construct linkages between alternative approaches to modeling product differentiation. It is shown that a demand system that satisfies the gross substitutes property imposes specific requirements on the locations of products. In particular, the dimension of the characteristics space must be larger than, or equal to, the number of products minus one. The authors then identify a method for casting a given demand system into their characteristics framework. This is illustrated for the logit, probit, and linear probability models of discrete choice theory. Finally, the authors find a characteristics representation of the CES representative consumer. Copyright 1989 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 1 (January)
Pages: 21-35

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Handle: RePEc:bla:restud:v:56:y:1989:i:1:p:21-35

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Cited by:
  1. von Ehrlich, Maximilian & Greiner, Tanja, 2013. "The role of online platforms for media markets — Two-dimensional spatial competition in a two-sided market," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 723-737.
  2. Marengo, Luigi & Valente, Marco, 2010. "Industry dynamics in complex product spaces: An evolutionary model," Structural Change and Economic Dynamics, Elsevier, vol. 21(1), pages 5-16, March.
  3. Verboven, F., 1995. "Localized Competition, Multimarket Operation and Collusive Behavior," Discussion Paper 1995-49, Tilburg University, Center for Economic Research.
  4. Vesala, Jukka, 1998. "Technological Transformation and Nonbank Competition in a Model of Retail Banking Oligopoly," Research Discussion Papers 8/1998, Bank of Finland.
  5. Frank Verboben, 1997. "Localized Competition, Multimarket Operation and Collusive Behavior," CIG Working Papers FS IV 97-03, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  6. Jaffe, Sonia & Kominers, Scott Duke, 2012. "Discrete choice cannot generate demand that is additively separable in own price," Economics Letters, Elsevier, vol. 116(1), pages 129-132.
  7. Christophe Dutang & Hansjoerg Albrecher & Stéphane Loisel, 2013. "Competition among non-life insurers under solvency constraints: A game-theoretic approach," Post-Print hal-00746245, HAL.
  8. Tan, Guofu & Yuan, Lasheng, 2003. "Strategic incentives of divestitures of competing conglomerates," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 673-697, May.
  9. Gans, J.S. & Hill, R.J., 1996. "Measuring Product Diversity," Papers 96/25, New South Wales - School of Economics.
  10. Heritiana Ranaivoson, 2005. "The economic analysis of product diversity," Cahiers de la Maison des Sciences Economiques r05083, Université Panthéon-Sorbonne (Paris 1).
  11. Lanclos, D. Kent & Hertel, Thomas W. & Devadoss, Stephen, 1996. "Assessing the effects of tariff reform on U.S. food manufacturing industries: the role of imperfect competition and intermediate inputs," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 14(3), August.
  12. Sällström Matthews, S.E., 2007. "Multi-Purpose Consumption and Functional Differentiation: Why has the Vibrant Galleria replaced the Good Old Fashioned Department Store?," Cambridge Working Papers in Economics 0727, Faculty of Economics, University of Cambridge.
  13. Verboven, F.L., 1994. "International price discrimination in the European car market: An econometric model of oligopoly behavior with product differentiation," Discussion Paper 1994-51, Tilburg University, Center for Economic Research.
  14. Darlene C. Chisholm & George Norman, 2002. "Spatial Competition and Demand: An Application to Motion Pictures," Discussion Papers Series, Department of Economics, Tufts University 0216, Department of Economics, Tufts University.
  15. Cohen-Zada, Danny & Justman, Moshe, 2012. "Affinity and tension between religious denominations: Evidence from private school enrolment," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 950-960.
  16. Sällström, Susanna, 2009. "Functional Differentiation," CEPR Discussion Papers 7187, C.E.P.R. Discussion Papers.
  17. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  18. repec:hal:journl:halshs-00197137 is not listed on IDEAS
  19. Simon P. Anderson & Andre de Palma, 1989. "The Logit as a Model of Product Differentiation: Further Results and Extensions," Discussion Papers 913, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Michelle Sovinsky Goeree, 2005. "Advertising in the US Personal Computer Industry," Industrial Organization 0503002, EconWPA.
  21. Truong, Truong P. & Hensher, David A., 2012. "Linking discrete choice to continuous demand within the framework of a computable general equilibrium model," Transportation Research Part B: Methodological, Elsevier, vol. 46(9), pages 1177-1201.

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