A discrete choice model approximation to the consumer's choice among television displays

Abstract

The consumer’s choice over a bundle of products dep ends on the observable and unobservable characteristics of the product and the consumer. The choice is made over the basis of maximizing utility subject to their in come restrictions and, at the same time, firms make product differentiation decisions over t he basis of maximizing profit. Quality is one way to differentiate products. An example of this type of differentiation happens in the TV market where several displays are develop ed. Our objective is to determine the probability for a consumer of choosing a type o f display among five kinds: standard tube, LCD, plasma, projection and LED. Using a mult inomial logit, we find that electronic appliances such as DVDs and audio system s, as well as socioeconomic status, increase the probability of choosing a high -tech display television. Our empirical approximation contributes to the further understand ing of consumer rational behavior through the theory utility maximization and highlig hts the importance of studying the market structure and analyzing changes in welfare a nd efficiency.