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A note on stochastic complementarity for the applied researcher

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  • Iaria, Alessandro
  • Wang, Ao

Abstract

In their discussion of stochastic complementarity, Manzini et al. (2018) show that the intuitively appealing correlation criterion does not—in general—satisfy the axiom of monotonicity: products classified as complements can turn into substitutes following an increase in their joint purchases. In this note, we show that, however, by restricting attention to mixed logit models along the lines of Gentzkow (2007)’s, one can prevent such violations.

Suggested Citation

  • Iaria, Alessandro & Wang, Ao, 2021. "A note on stochastic complementarity for the applied researcher," Economics Letters, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:ecolet:v:199:y:2021:i:c:s0165176521000082
    DOI: 10.1016/j.econlet.2021.109731
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    References listed on IDEAS

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    1. Lukasz Grzybowski & Frank Verboven, 2016. "Substitution between fixed-line and mobile access: the role of complementarities," Journal of Regulatory Economics, Springer, vol. 49(2), pages 113-151, April.
    2. Paola Manzini & Marco Mariotti & Levent Ülkü, 2019. "Stochastic Complementarity," The Economic Journal, Royal Economic Society, vol. 129(619), pages 1343-1363.
    3. Hongju Liu & Pradeep K. Chintagunta & Ting Zhu, 2010. "Complementarities and the Demand for Home Broadband Internet Services," Marketing Science, INFORMS, vol. 29(4), pages 701-720, 07-08.
    4. Jeremy T. Fox & Natalia Lazzati, 2017. "A note on identification of discrete choice models for bundles and binary games," Quantitative Economics, Econometric Society, vol. 8(3), pages 1021-1036, November.
    5. Roy Allen & John Rehbeck, 2019. "Identification With Additively Separable Heterogeneity," Econometrica, Econometric Society, vol. 87(3), pages 1021-1054, May.
    6. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    7. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-1289, December.
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