Estimating Multiple-Discrete Choice Models: An Application to Computeri-Zzation Returns

53 Pages Posted: 26 Aug 2000 Last revised: 19 Jun 2021

See all articles by Igal Hendel

Igal Hendel

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 1994

Abstract

This paper develops a multiple-discrete choice model for the analysis of demand of differentiated products. Users maximize profits by choosing the number of units of each brand they purchase. Multiple-unit as well as multiple-brand purchases are allowed. These two features distinguish this model from classical discrete choice models which consider only a single choice among mutually exclusive alternatives. Model parameters are estimated using the simulated method of moments technique. Both requirements - microfoundations and estimability -are imposed in order to exploit the available micro level data on personal computer purchases. The estimated demand structure is used to assess welfare gains from computerization and technological innovation in peripherals industries. The estimated return on investment in computers is 90%. Moreover, a 10% increase in the performance to price ratio of microprocessors leads to a 4% gain in the estimated end user surplus.

Suggested Citation

Hendel, Igal E., Estimating Multiple-Discrete Choice Models: An Application to Computeri-Zzation Returns (October 1994). NBER Working Paper No. t0168, Available at SSRN: https://ssrn.com/abstract=225126

Igal E. Hendel (Contact Author)

Northwestern University - Department of Economics ( email )

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