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Demand for differentiated products, discrete choice models, and the characteristics approach

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  • ANDERSON, Simon P.
  • de PALMA, André
  • THISSE, Jacques-François

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

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -824.

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Handle: RePEc:cor:louvrp:-824

Note: In : Review of Economic Studies, 56, 21-35, 1989
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Cited by:
  1. Sällström, Susanna, 2009. "Functional Differentiation," CEPR Discussion Papers 7187, C.E.P.R. Discussion Papers.
  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. repec:hal:journl:halshs-00197137 is not listed on IDEAS
  4. Michelle Sovinsky Goeree, 2005. "Advertising in the US Personal Computer Industry," Industrial Organization 0503002, EconWPA.
  5. Gans, Joshua S. & Hill, Robert J., 1997. "Measuring product diversity," Economics Letters, Elsevier, vol. 55(1), pages 145-150, August.
  6. Verboven, Frank, 1998. "Localized Competition, Multimarket Operation, and Collusive Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 371-98, May.
  7. 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.
  8. 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, Blackwell, vol. 14(3), pages 201-212, August.
  9. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  10. 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).
  11. 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.
  12. 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.
  13. Christophe Dutang & Hansjoerg Albrecher & Stéphane Loisel, 2013. "Competition among non-life insurers under solvency constraints: A game-theoretic approach," Post-Print hal-00746245, HAL.
  14. 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.
  15. Vesala, Jukka, 1998. "Technological Transformation and Nonbank Competition in a Model of Retail Banking Oligopoly," Research Discussion Papers 8/1998, Bank of Finland.
  16. 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.
  17. Heritiana Ranaivoson, 2005. "The economic analysis of product diversity," Cahiers de la Maison des Sciences Economiques r05083, Université Panthéon-Sorbonne (Paris 1).
  18. 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.
  19. 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.
  20. 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.

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