Estimating Multiple-Discrete Choice Models: An Application to Computeri-zzation Returns

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This paper develops a multiple-discrete choice model for the analysis of demand of differentiated products. Users maximize profits by choosing the number of units of each brand they purchase. Multiple-unit as well as multiple-brand purchases are allowed. These two features distinguish this model from classical discrete choice models which consider only a single choice among mutually exclusive alternatives. Model parameters are estimated using the simulated method of moments technique. Both requirements - microfoundations and estimability -are imposed in order to exploit the available micro level data on personal computer purchases. The estimated demand structure is used to assess welfare gains from computerization and technological innovation in peripherals industries. The estimated return on investment in computers is 90%. Moreover, a 10% increase in the performance to price ratio of microprocessors leads to a 4% gain in the estimated end user surplus.

Published: Review of Economic Studies, Vol. 66, no. 2 (April 1999): 423-446.

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