Market Analysis 3b

Videos and questions for Chapter 3b of the course "Market Analysis with Econometrics and Machine Learning" at Ulm University (taught by Sebastian Kranz)

Profit maximization of a multi-product firm

Which sign would we expect for the cross price derivative \(\frac{\partial q_{2}(p)}{\partial p_1}\) for two car models?

Negative

Zero

Positive

Can the conditional logit with product attributes as explanatory variables well model flexible substitution patterns? Make a guess.

Yes, given a well designed choice experiment.

No, the substitition patterns will always be very limited.

For which car type will a conditional logit model predict a higher increase in the absolute demand if the price of sports car A increases (see video above)?

For sports car B

For family car C

The absolute demand increase will be the same for B and C.

Which choice probabilities will the conditional logit model predict when we introduce the blue bus?

The car, red bus and blue bus will each be chosen with probaility 1/3.

The car will be chosen with probability 1/2 and the blue bus and red bus with probability 1/4 each.

The car will be chosen with probability 1/2 and we don't know the choice probabilities of each bus type.

Independence of irrelevant alternatives

Two consumer types

Will the model with two consumer types have the effect that a price increase of sports car A has a bigger impact on sports car B than on family car C?

Yes

The mixed logit model

That's all. Look at the RTutor problem set 3b to study an application of mixed logit models.