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I'm implementing a multinomial logit model but I have a problem regarding price variable. Let's say the choice set has 4 alternatives. Each alternative are characterized by different attributes one of which is price. Each alternative has its own price:for example alternative from 1 to 4 has price (10,20,30,40). For some people (student for example) price are discounted of 50%, so the price of the alternatives are (5,10,15,20). In such a case how it is possible to treat the price variable? Interact the price with a discount variable?Put as explanatory variable all the different price categorie (e.g full price, price children, price senior…)?Consider only the full price and set a dummy variable for the category? Thank you

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  • $\begingroup$ Do you observe if someone is eligible for the discounted price, even if they do not buy? $\endgroup$ – Dimitriy V. Masterov Dec 6 '15 at 20:58
  • $\begingroup$ No, I observe if someone is eligible only if they buy the ticket (I adopt a Revealed Preference framework) $\endgroup$ – Andrea Dec 6 '15 at 22:08

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