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The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products

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  • Schiraldi, Pasquale
  • Davis, Peter

Abstract

We show FC-MNL is flexible in the sense of Diewert (), thus its parameters can be chosen to match a well-defined class of possible own- and cross-price elasticities of demand. In contrast to models such as Probit and Random Coefficient-MNL models, FC-MNL does not require estimation via simulation; it is fully analytic. Under well-defined and testable parameter restrictions, FC-MNL is shown to be an unexplored member of McFadden's class of Multivariate Extreme Value discrete-choice models. Therefore, FC-MNL is fully consistent with an underlying structural model of heterogeneous, utility-maximizing consumers. We provide a Monte-Carlo study to establish its properties and we illustrate its use by estimating the demand for new automobiles in Italy.

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  • Schiraldi, Pasquale & Davis, Peter, 2014. "The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products," LSE Research Online Documents on Economics 46855, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:46855
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    4. Mogens Fosgerau & Julien Monardo & André de Palma, 2019. "The Inverse Product Differentiation Logit Model," Working Papers hal-02183411, HAL.
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    8. Pesendorfer, Martin & Gentry, Matthew, 2018. "Price Reference Effects in Consumer Demand," CEPR Discussion Papers 13382, C.E.P.R. Discussion Papers.
    9. Jason Abaluck & Abi Adams, 2017. "What do consumers consider before they choose? Identification from asymmetric demand responses," IFS Working Papers W17/09, Institute for Fiscal Studies.
    10. Alessandro Iaria, & Wang, Ao, 2021. "An Empirical Model of Quantity Discounts with Large Choice Sets," The Warwick Economics Research Paper Series (TWERPS) 1378, University of Warwick, Department of Economics.
    11. Alfred Galichon & Bernard Salani'e, 2021. "Cupid's Invisible Hand: Social Surplus and Identification in Matching Models," Papers 2106.02371, arXiv.org, revised Jan 2023.
    12. Taiju Kitano, 2022. "Environmental Policy as a De Facto Industrial Policy: Evidence from the Japanese Car Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(4), pages 511-548, June.
    13. Pesendorfer, Martin & Schiraldi, Pasquale & Silva-Junior, Daniel, 2023. "Omitted budget constraint bias in discrete-choice demand models," LSE Research Online Documents on Economics 117353, London School of Economics and Political Science, LSE Library.

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