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Linear Demand Systems are Inconsistent with Discrete Choice

Author

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  • Jaffe Sonia

    (Harvard University, sjaffe@fas.harvard.edu)

  • Weyl E. Glen

    (Harvard University, weyl@fas.harvard.edu)

Abstract

We show that with more than two options, a discrete choice model cannot generate linear demand. In doing so, we demonstrate a prediction of such discrete choice models that is falsifiable based on local second-order properties of demand.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:52
    DOI: 10.2202/1935-1704.1729
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Armstrong, Mark & Vickers, John, 2015. "Which demand systems can be generated by discrete choice?," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 293-307.
    2. Alexander White & E. Glen Weyl, 2010. "Imperfect Platform Competition: A General Framework," Working Papers 10-17, NET Institute, revised Nov 2010.
    3. Choné, Philippe & Linnemer, Laurent, 2020. "Linear demand systems for differentiated goods: Overview and user’s guide," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    4. Matthias Hunold & Johannes Muthers, 2011. "Resale Price Maintenance: Hurting Competitors, Consumers and Yourself," Working Papers 100, Bavarian Graduate Program in Economics (BGPE).
    5. Stephan Müller & Georg Wangenheim, 2017. "The impact of market innovations on the dissemination of social norms: the sustainability case," Journal of Evolutionary Economics, Springer, vol. 27(4), pages 663-690, September.
    6. Christopher Conlon & Julie Holland Mortimer, 2021. "Empirical properties of diversion ratios," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 693-726, December.
    7. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    8. Robert Willig, 2011. "Unilateral Competitive Effects of Mergers: Upward Pricing Pressure, Product Quality, and Other Extensions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(1), pages 19-38, August.
    9. Takanori Adachi & Takeshi Ebina, 2016. "Log-linear demand systems with differentiated products are inconsistent with the representative consumer approach," Economics Bulletin, AccessEcon, vol. 36(1), pages 260-267.
    10. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    11. Gokan,Toshitaka & Thisse,Jacques-François, 2024. "Are spatial differentiation and product differentiation substitutes?," IDE Discussion Papers 943, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Boa, I. & Elliott, M. & Foster, D., 2023. "A Capability Approach to Merger Review," Cambridge Working Papers in Economics 2312, Faculty of Economics, University of Cambridge.
    13. 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.
    14. Matthias Hunold & Johannes Muthers, 2017. "Resale price maintenance and manufacturer competition for retail services," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 3-23, March.

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    Keywords

    linear demand; discrete choice;

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