The consumer’s choice among television displays: A multinomial logit approach

Abstract

The consumer’s choice over a bundle of products depends on observable and unobservable characteristics of goods and consumers. This choice is made in order to maximize utility subject to a budget constraint. At the same time, firms make product differentiation decisions to maximize profit. Quality is a form of differentiation. An example of this occurs in the TV market, where several displays are developed. Our objective is to determine the probability for a consumer of choosing a type of display from among five kinds: standard tube, LCD, plasma, projection and LED. Using a multinomial logit approach, we find that electronic appliances like DVDs and audio systems, as well as socioeconomic status, increase the probability of choosing a high-tech television display. Our empirical approximation contributes to further understanding rational consumer behavior through the theory of utility maximization and highlights the importance of studying market structure and analyzing changes in welfare and efficiency.

Keywords

• Observable product characteristics
• product differentiation
• quality
• television display