A Hybrid Discrete Choice Model of Differentiated Product Demand with an Application to Personal Computers

In this paper I consider a new discrete choice model of differentiated product demand that combines the pure characteristics demand model and the random coefficient logit demand model. In this hybrid model consumers are exposed to an idiosyncratic taste shock when they make a brand choice but free from it when they make a product choice within a brand. I compare the hybrid model with other demand models using product level data on personal computers. I also analyze the PC market after the merger between Hewlett-Packard and Compaq. My results show that the two brands became more differentiated from each other over time, suggesting that the merged firm repositioned its brands after the merger