Demand with Complementarity: A Market-Share Approach

69 Pages Posted: 5 Mar 2021 Last revised: 4 Mar 2024

See all articles by Ao Wang

Ao Wang

Department of Economics, University of Warwick

Date Written: January 1, 2021

Abstract

We propose a model of demand for bundles that deals with multiple purchases and allows for complementarity among products. Its identification and estimation only require the availability of aggregate data at product level (e.g., sales quantities), a feature that enables researchers to implement policy evaluations without observing individual-level purchases of bundles. We estimate the demand for Ready-To-Eat (RTE) cereals and milk in the US and investigate the policy implications of their complementarity. We find that RTE cereal and milk are overall complementary. As a result, policy change in one category may negatively affect the other, a new source of welfare loss in classic policy simulations such as sugar tax.

Keywords: complementarity, multiple purchase, market-level data, cross-category externality, sugar tax, demand for bundles

Suggested Citation

Wang, Ao, Demand with Complementarity: A Market-Share Approach (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3785148 or http://dx.doi.org/10.2139/ssrn.3785148

Ao Wang (Contact Author)

Department of Economics, University of Warwick ( email )

The Social Sciences Building,
The University of Warwick
Coventry, CV4 7AL
United Kingdom

HOME PAGE: http://https://sites.google.com/view/aowang-economics

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