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Discrete choice cannot generate demand that is additively separable in own price

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  • Jaffe, Sonia
  • Kominers, Scott Duke

Abstract

We show that in a unit demand discrete choice framework with at least three goods, demand cannot be additively separable in own price. This result sharpens the analogous result of Jaffe and Weyl (2010) in the case of linear demand and has implications for testing of the discrete choice assumption, out-of-sample prediction, and welfare analysis.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512000298
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 1 ()
Pages: 129-132

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:1:p:129-132

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Discrete choice; Unit demand; Separable demand; Linear demand;

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  1. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, . "Demand for differentiated products, discrete choice models, and the characteristics approach," CORE Discussion Papers RP -824, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  5. Jaffe Sonia & Weyl E. Glen, 2010. "Linear Demand Systems are Inconsistent with Discrete Choice," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-8, December.
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