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Multi-Price Alternative Specific Design


I have, what I believe looks quite simple but is perhaps quite complex. It's related to transport modelling. I'm creating a fairly standard Alt-Spec design for mode choice (Bus, Tram, Car etc.) and price along with some other variable such as wait times for bus and tram etc.

However I have a conundrum. In my Car alternative I have a daily parking fee ($10, $15, $20 etc) but I would also like to include a toll road fee as well ($5.50, $6.50 etc.)

How would I estimate single price based demand curve for car (which technically there will be two of, one for parking and one for toll) or a simple WTP (price change over utility change) for attributes such as travel time or traffic congestion or any other variable that might be applicable to the car alternative?

Could a solution be to code toll as a continuous variable generating a single parameter for all the levels and then add that part-worth to each level of the price utility.

Any help would be most appreciated.
asked Feb 22, 2017 by Jasha Bowe

1 Answer

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Best answer

Well, some economists might want to think that a buyer's quantity demanded due to changes in price of a dollar shouldn't depend on what part of the service or good the price is being charged on.  Marketers think that there are psychological "reservation prices" and different price sensitivities attached to different aspects of a product or service when those different aspects are broken out and charged separately for.

If you want to simplify and believe that there is just one price sensitivity curve for cars, then sum the price components shown to respondents in each alternative and choice task to create one continuous variable to be fit for price of using a car.  

Alternatively, keep the two price variables separate for car.  You can fit both models and use the 2 log-likelihood test with pooled (aggregate) logit to test whether modeling two separate price functions for car add statistically significant fit.
answered Feb 22, 2017 by Bryan Orme Platinum Sawtooth Software, Inc. (159,360 points)