NBER

Ting Wang

Northwestern University
Department of Economics
2001 Sheridan Road
Evanston, IL 60208-2600

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Northwestern University

NBER Working Papers and Publications

June 2020Parallel Inverse Aggregate Demand Curves in Discrete Choice Models
with Kory Kroft, René Leal Vizcaíno, Matthew J. Notowidigdo: w27437
This paper highlights a previously-unnoticed property of commonly-used discrete choice models, which is that they feature parallel demand curves. Specifically, we show that in random utility models, inverse aggregate demand curves shift in parallel with respect to variety if and only if the random utility shocks follow the Gumbel distribution. Using results from Extreme Value Theory, we provide conditions for other distributions to generate parallel demands asymptotically, as the number of varieties increase. We establish these results in the benchmark case of symmetric products, illustrate them using numerical simulations and show that they hold in extended versions of the model with correlated tastes and asymmetric products. Lastly, we provide a “proof of concept” of parallel demands as ...

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