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Blurred boundaries: a flexible approach for segmentation applied to the car market

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  • Laura Grigolon

Abstract

Prominent features of differentiated product markets are segmentation and product proliferation that blurs the boundaries between segments. I develop a tractable demand model,the Ordered Nested Logit, which allows for over lap between neighboring segments.I apply the model to the automobile market where segments are ordered from small to luxury. I find that consumers, when substituting outside their vehicle segment, are more likely to switch to a neighboring segment. Accounting for such a symmetric substitution matters when evaluating the impact of new product introduction or studying the effect of subsidies on fuel-efficient cars.

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  • Laura Grigolon, 2017. "Blurred boundaries: a flexible approach for segmentation applied to the car market," Department of Economics Working Papers 2017-17, McMaster University.
    • Handle: RePEc:mcm:deptwp:2017-17
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    3. Mogens Fosgerauy & Julien Monardoz & André de Palma, 2023. "The Inverse Product Differentiation LogitModel," THEMA Working Papers 2023-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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