A regression model of product differentiation

Mogens, Fosgerau (2016): A regression model of product differentiation.

Abstract

This note develops a model of product differentiation that can be estimated using standard regression techniques and applies it to a panel data set of new car sales. The model allows for complex substitution patterns according to an overlapping nest structure that makes cars closer substitutes if the share brand, body type, and/or quality level. A nest comprising all the car alternatives ensure that they are closer substitutes with each other than with the outside good. In addition, the model comprises fixed effects by car model, controlling for unobserved car quality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Market shares; complex substitution; endogeneity; discrete choice; new cars
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C26 - Instrumental Variables (IV) Estimation; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment

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