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Linear Demand Systems are Inconsistent with Discrete Choice

Author Info

Listed author(s):
  • Jaffe Sonia

    ()

    (Harvard University)

  • Weyl E. Glen

    ()

    (Harvard University)

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.

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File URL: https://www.degruyter.com/view/j/bejte.2010.10.1/bejte.2010.10.1.1729/bejte.2010.10.1.1729.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 10 (2010)
Issue (Month): 1 (December)
Pages: 1-8

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Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:52
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  1. Burt, Oscar R & Brewer, Durward, 1971. "Estimation of Net Social Benefits from Outdoor Recreation," Econometrica, Econometric Society, vol. 39(5), pages 813-827, September.
  2. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
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Cited by:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Hunold, Matthias & Muthers, Johannes, 2012. "Resale price maintenance and manufacturer competition for retail services," ZEW Discussion Papers 12-028, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Alexander White & E. Glen Weyl, 2010. "Imperfect Platform Competition: A General Framework," Working Papers 10-17, NET Institute, revised Nov 2010.
  8. Matthias Hunold & Johannes Muthers, 2011. "Resale Price Maintenance: Hurting Competitors, Consumers and Yourself," Working Papers 100, Bavarian Graduate Program in Economics (BGPE).

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