Markup Uniformity Under the Multi-Nomial Logit
3 Pages Posted: 10 Apr 2011
Date Written: April 7, 2011
We show that the multi-nomial logit model of demand implies a constant markup of price above marginal cost for multi-product oligopolists. Further, for the random coefficients discrete choice model of demand, a multi-product oligopolist optimally sets the same markup for two products if they share the same form of consumer heterogeneity, even if product characteristics differ markedly.
Keywords: Multi-nomial logit, price uniformity, oligopoly
JEL Classification: L13
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