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An Empirical Model of Quantity Discounts with Large Choice Sets

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  • Iaria, Alessandro
  • Wang, Ao

Abstract

We introduce a Generalized Nested Logit model of demand for bundles that can be estimated sequentially and virtually eliminates any challenge of dimensionality related to large choice sets. We use it to investigate quantity discounts for carbonated soft drinks by simulating a counterfactual with linear pricing. The prices of quantities up to 1L decrease by -31.5% while those of larger quantities increase by +14.8%. Purchased quantities decrease by -20.4%, associated added sugar by -23.8%, and industry profit by -20.5%. Consumer surplus however reduces only moderately, suggesting that linear pricing may be effective in limiting added sugar intake.

Suggested Citation

  • Iaria, Alessandro & Wang, Ao, 2021. "An Empirical Model of Quantity Discounts with Large Choice Sets," CEPR Discussion Papers 16666, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16666
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    More about this item

    Keywords

    Quantity discounts; Large choice sets; Demand for bundles; Generalized nested logit; Carbonated soft drinks; Purchase of multiple units;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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