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Multiproduct Firms: A Nested Logit Approach

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  • Simon P. Anderston
  • Andre de Palma

Abstract

Thie paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand. The demand model is parametrized by two variable which characterize different dimensions of preference variety. These reflect intragroup heterogeneity and intergropu heterogeneity, a group (or nest) being the set of products produced by a firm. There are then two dimensions to market performance; the total number of firms and the range of products produced per firm. It is shown that the market equilibrium involves an excessive number of firms, but each firm provides too few products.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 973.

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Date of creation: Mar 1991
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Handle: RePEc:nwu:cmsems:973

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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Web page: http://www.kellogg.northwestern.edu/research/math/
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Keywords: Discrete choice model; oligopolistic competition; multiple product firms; nested logit model.;

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  1. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
  2. Anderson, Simon P & De Palma, Andre, 1992. "The Logit as a Model of Product Differentiation," Oxford Economic Papers, Oxford University Press, vol. 44(1), pages 51-67, January.
  3. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. S. Chan Choi & Wayne S. Desarbo & Patrick T. Harker, 1990. "Product Positioning Under Price Competition," Management Science, INFORMS, vol. 36(2), pages 175-199, February.
  5. Hotaka Katahira, 1990. "Perceptual Mapping Using Ordered Logit Analysis," Marketing Science, INFORMS, vol. 9(1), pages 1-17.
  6. Besanko, David & Perry, Martin K & Spady, Richard H, 1990. "The Logit Model of Monopolistic Competition: Brand Diversity," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 397-415, June.
  7. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  8. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
  9. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June.
  10. Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
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