Econometrics Commons^™

Multi-Stage Oligopoly Models With Nested Logit Demand Structures: A Simplifying Approach, Xosé-Luís Varela-Irimia

Xosé-Luís Varela-Irimia

In oligopolistic markets where firms sell multiple products in different segments the nested logit framework is a common approach to model durable goods demands. In these settings, multi-stage oligopoly models are used to study relevant firm decisions, such as market entry or the relation between competition and location. The rationale for making decisions in these contexts is comparing the profitability of the alternative choices. However, solving these models to obtain profitability measures easily becomes a complex task when using nested logit demands. This paper shows that when within-segment firm shares are equal across segments, the analytical expression for equilibrium profits …