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

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  • Davis, Peter
  • Schiraldi, Pasquale

Abstract

We show FC-MNL is flexible in the sense of Diewert (1974), 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 the use by estimating the demand for new automobiles in Italy.

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  • Davis, Peter & Schiraldi, Pasquale, 2013. "The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products," LSE Research Online Documents on Economics 54252, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:54252
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    Cited by:

    1. Laura Grigolon, 2017. "Blurred boundaries: a flexible approach for segmentation applied to the car market," Department of Economics Working Papers 2017-17, McMaster University.
    2. André De Palma & Julien Monardo, 2017. "The General Nesting Logit (GNL) Model using Aggregate Data," Working Papers hal-01552455, HAL.
    3. 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.
    4. Jason Abaluck & Abi Adams, 2017. "What Do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses," NBER Working Papers 23566, National Bureau of Economic Research, Inc.

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    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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