Two Level Nested and Sequential Logit

Abstract

This technical note provides comprehensive derivations of fundamental equations in two-level nested and sequential logit models for analyzing hierarchical choice structures. We present derivations of the Berry (1994) inversion formula, nested inclusive values computation, and multi-level market share equations, complementing existing literature. While conceptually distinct, nested and sequential logit models share mathematical similarities and, under specific distributional assumptions, yield identical inversion formulas-offering valuable analytical insights. These notes serve as a practical reference for researchers implementing multi-level discrete choice models in empirical applications, particularly in industrial organization and demand estimation contexts, and complement Mansley et al. (2019).