Estimating Substitution Patterns and Demand Curvature in Discrete-choice Models of Product Differentiation

Download or read book Estimating Substitution Patterns and Demand Curvature in Discrete-choice Models of Product Differentiation written by Cameron Birchall and published by . This book was released on 2022 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extend BLP's aggregate discrete-choice model of product differentiation to create more flexibility in the price functional form. We apply a Box-Cox specification, which relaxes the typical unit demand assumption and creates flexibility on demand curvature. The model provides a unifying framework for mixed logit and mixed CES models. Our illustrative application to the ready-to-eat cereals market shows that the cross-sectional relation between price elasticities and average prices per product is more in line with descriptive elasticity patterns. Furthermore, it suggests lower cross-price elasticities between similarly priced products than in more restrictive specifications.