||Discrete choice models for multicategory goods
15-082015-06 , GRIPS Policy Research Center
Although discrete choice models are well suited to describing the demand structure of differentiated goods, two important problems remain unsolved in their application. First, the total demand for a choice set is exogenously fixed. Second, multiple categories of goods cannot be handled in an unrestrictive way. In this paper, we address these flaws by formulating a complete utility maximization problem that is consistent with discrete choice models and derive the implications for applied research. We then apply the results to the ketchup and mayonnaise markets and investigate the differences arising from the consideration of multiple categories of goods.
JEL Classification Codes: C35, D11, D12