Affiliation:
1. Department of Economics, University of Mannheim
2. MaCCI
3. CEPR
Abstract
Prominent features of differentiated product markets are segmentation and product proliferation blurring the boundaries between segments. I develop a tractable demand model, the Ordered Nested Logit, which allows for asymmetric substitution between segments. I apply the model to the automobile market where segments are ordered from small to luxury. I find that consumers, when substituting outside their vehicle segment, are more likely to switch to a neighboring segment. Accounting for such asymmetric substitution matters when evaluating the impact of new product introduction or the effect of subsidies on fuel‐efficient cars.
Subject
Economics and Econometrics
Cited by
1 articles.
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