The Inverse Product Differentiation Logit Model
Fosgerau, Mogens
The Inverse Product Differentiation Logit Model - American Economic Journal: Microeconomics 2024 - 329-370
We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variable regression with market-level data. Furthermore, we provide Monte Carlo experiments comparing the IPDL model to the workhorse empirical models of the literature. Lastly, we demonstrate the empirical performance of the IPDL model using a well-known dataset on the ready-to-eat cereal market.
1945-7669
Beverages
Consumer Economics
Discrete Regressors
e-Commerce
Retail and Wholesale Trade
Wine and Spirits
The Inverse Product Differentiation Logit Model - American Economic Journal: Microeconomics 2024 - 329-370
We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variable regression with market-level data. Furthermore, we provide Monte Carlo experiments comparing the IPDL model to the workhorse empirical models of the literature. Lastly, we demonstrate the empirical performance of the IPDL model using a well-known dataset on the ready-to-eat cereal market.
1945-7669
Beverages
Consumer Economics
Discrete Regressors
e-Commerce
Retail and Wholesale Trade
Wine and Spirits