Blurred boundaries: A flexible approach for segmentation applied to the car market
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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.
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Keyword(s):
2011 ◽
Vol 2
(9)
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Keyword(s):
Keyword(s):
1974 ◽
Vol 2
(2)
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pp. 391-400
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2010 ◽
Vol 21
(4)
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pp. 905-920
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