Demand Models for Differentiated Goods with Complementarity and Substitutability

Abstract

We develop a class of demand models for differentiated products. The new models facilitate the BLP method (Berry et al., 1995) while numerical inversion of the demand system is not required. They can accommodate rich patterns of substitution and complementarity while being easily estimated with standard regression techniques and allowing very large choice sets. We use the new models to describe markets for differentiated products that exhibit segmentation according to several dimensions and illustrate their application by estimating demand for cereals in Chicago.

Injectivity and the Law of Demand

“…2 Fosgerau et al [2018] provide an injectivity result for a demand system that allows complementarity. They consider quasilinear preferences and so their demand system fits into the setup of this paper.…”