The Application and Economic Interpretation of Selectivity Models

Abstract

Abstract Substantial differences in economic interpretations may be inferred from the estimated selectivity model results. Using the demand for frozen concentrated orange juice (FCOJ) as an example, the study suggests that the consumption patterns are quite similar between national brand and private label when the marginal effects and elasticities are evaluated based on actual observations rather than unobserved latent variables. Results show that private label FCOJ is considered as a normal (inferior) good if the income effect is assessed based on actual (potential) purchases. The estimated cents‐off elasticities for private label FCOJ also vary substantially depending on which approach is used.