Discrete choice cannot generate demand that is additively separable in own price
We show that in a unit demand discrete choice framework with at least three goods, demand cannot be additively separable in own price. This result sharpens the analogous result of Jaffe and Weyl (2010) in the case of linear demand and has implications for testing of the discrete choice assumption, out-of-sample prediction, and welfare analysis.
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- ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, .
"Demand for differentiated products, discrete choice models, and the characteristics approach,"
CORE Discussion Papers RP
824, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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