COMPARING ALTERNATIVE MODELS OF HETEROGENEITY IN CONSUMER CHOICE BEHAVIOR
Version of Record online: 24 SEP 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 28, Issue 6, pages 1018–1045, September/October 2013
How to Cite
Keane, M. and Wasi, N. (2013), COMPARING ALTERNATIVE MODELS OF HETEROGENEITY IN CONSUMER CHOICE BEHAVIOR. J. Appl. Econ., 28: 1018–1045. doi: 10.1002/jae.2304
- Issue online: 18 SEP 2013
- Version of Record online: 24 SEP 2012
- Manuscript Revised: 24 MAY 2012
- Manuscript Received: 27 JUL 2010
When modeling demand for differentiated products, it is vital to adequately capture consumer taste heterogeneity, But there is no clearly preferred approach. Here, we compare the performance of six alternative models. Currently, the most popular are mixed logit (MIXL), particularly the version with normal mixing (N-MIXL), and latent class (LC), which assumes discrete consumer types. Recently, several alternative models have been developed. The 'generalized multinomial logit' (G-MNL) extends N-MIXL by allowing for heterogeneity in the logit scale coefficient. Scale heterogeneity logit (S-MNL) is a special case of G-MNL with scale heterogeneity only. The 'mixed-mixed' logit (MM-MNL) assumes a discrete mixture-of-normals heterogeneity distribution. Finally, one can modify N-MIXL by imposing theoretical sign constraints on vertical attributes. We call this 'T-MIXL'. We find that none of these models dominates the others, but G-MNL, MM-MNL and T-MIXL typically outperform the popular N-MIXL and LC models. Copyright © 2012 John Wiley & Sons, Ltd.