Latent Complementarity in Bundles Models
46 Pages Posted: 23 Oct 2018 Last revised: 19 Feb 2019
Date Written: February 14, 2019
This paper studies the measurement of latent complementarity in a simple latent utility model with two goods and binary quantities of each good (buy/don't buy). We show that with binary demand shifters, sharp bounds on the fraction of individuals for whom goods are complements/substitutes involve marginal choice probabilities. With rich variation in demand shifters, we show it is also possible to identify the distribution of latent complementarity using only marginal choice probabilities. Together, these results indicate that mean demands are sufficient for measuring complementarity without observing whether goods are chosen together.
Keywords: Bundles, Complementarity, Identification
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