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