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The Use of the Logit Model in Applied Industrial Organization

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  • Gregory Werden
  • Luke Froeb
  • Timothy Tardiff

Abstract

Qualitative choice models, such as the logit model, can capture important firm and product asymmetries. This paper surveys use of the logit model in industrial organization, with special focus on its application to merger analysis. The basic model and its motivation are reviewed, as is its estimation. Discussed in some detail is the use of the logit model to predict the price and welfare effects of horizontal mergers in differentiated products industries. Simulation using a qualitative choice model is argued to be far superior to traditional structural analysis. Logit merger simulations have the particular virtues of low informational and computational burdens and the use of the logit model can be motivated as reflecting a diffuse prior on the structure of demand.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 3 (1996)
Issue (Month): 1 ()
Pages: 83-105

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Handle: RePEc:taf:ijecbs:v:3:y:1996:i:1:p:83-105

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Related research

Keywords: Quantitative Choice; Mergers; Antitrust; JEL classifications: D43; L25; L4;

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Cited by:
  1. Philip Crooke & Luke Froeb & Steven Tschantz & Gregory Werden, 1999. "Effects of Assumed Demand Form on Simulated Postmerger Equilibria," Review of Industrial Organization, Springer, Springer, vol. 15(3), pages 205-217, November.
  2. Alan Marco & Gordon Rausser, 2011. "Complementarities and spillovers in mergers: an empirical investigation using patent data," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(3), pages 207-231.
  3. Hausman, Jerry A. & Leonard, Gregory K., 2007. "Estimation of patent licensing value using a flexible demand specification," Journal of Econometrics, Elsevier, Elsevier, vol. 139(2), pages 242-258, August.
  4. Werden, Gregory J., 1997. "Simulating The Effects Of Differentiated Products Mergers: A Practitioners' Guide," Proceedings: Strategy and Policy in the Food System: Emerging Issues, June 20-21, 1996, Washington, D.C., Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performa 25942, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
  5. Gregory Werden & Luke Froeb & James Langenfeld, 2000. "Lost Profits from Patent Infringement: The Simulation Approach," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(2), pages 213-227.
  6. Oliver Budzinski & Isabel Ruhmer, 2008. "Merger Simulation in Competition Policy: A Survey," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Dubin, Jeffrey A., 2007. "Valuing intangible assets with a nested logit market share model," Journal of Econometrics, Elsevier, Elsevier, vol. 139(2), pages 285-302, August.

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