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Instability in mixed logit demand models

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  • McFadden, Daniel

Abstract

When a mixed logit demand model is used to estimate market-clearing prices, the high influence of the left tail of the random price coefficient can lead to numerical and statistical instability. I show this is an issue with any mixing distribution whose price coefficient is not bounded away from zero. I give conditions under which market equilibrium prices implied by mixed logit models exist, and show they are satisfied for lognormal mixing and some cases of truncated normal mixing. However, even when market equilibria exist, these models can be unstable and produce statistically unreliable and economically implausible conclusions.

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  • McFadden, Daniel, 2022. "Instability in mixed logit demand models," Journal of choice modelling, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:eejocm:v:43:y:2022:i:c:s1755534522000112
    DOI: 10.1016/j.jocm.2022.100353
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    Cited by:

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    3. Curtis Rollins, 2023. "Investigating cost non‐attendance as a driver of inflated welfare estimates in mixed‐logit models," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(3), pages 921-934, September.

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    Keywords

    Mixed logit; Market simulation;

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