Latent Separability: Grouping Goods without Weak Separability

This paper develops a new concept of separability with overlapping groups. This is shown to provide a useful empirical and theoretical framework for investigating the grouping of goods and prices. It is a generalisation of weak separability in which goods are allowed to enter more than one group and where the composition of groups is identified by the choice of group specific exclusive goods. For the Almost Ideal and Translog demand models and their generalisations, we provide a method for choosing the number of separable groups. A detailed method for exploring the composition of the separable groups is also presented.