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

  • Peter Davis
  • Pasquale Schiraldi

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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File URL: http://eprints.lse.ac.uk/54252/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 54252.

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Length: 58 pages
Date of creation: 17 Aug 2013
Date of revision:
Handle: RePEc:ehl:lserod:54252
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