WHAT HAPPENS WHEN DEMAND IS ESTIMATED WITH A MISSPECIFIED MODEL? -super-*
AbstractWe conduct Monte Carlo experiments to investigate the biases of assuming a misspecified demand model. We study continuous models (linear, log-linear and AIDS), and discrete choice models (logit) in the context of differentiated products and aggregate data. Estimating demand with the 'wrong' model yields varying degrees of bias in estimated elasticities, but the logit model can yield unbiased estimates for a certain size of the assumed market potential. Merger simulations confirm the key importance of market potential in logit estimation suggesting that a discrete choice model may be preferable even when the discreteness of the purchase decision is questionable. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Journal of Industrial Economics.
Volume (Year): 56 (2008)
Issue (Month): 4 (December)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821
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- Vivienne Pham & David Prentice, 2010.
"An empirical Analysis of the Counter-factual: A Merger and Divestiture in the Australian Cigarette Industry,"
2010.08, School of Economics, La Trobe University.
- Pham, Vivienne & Prentice, David, 2010. "An empirical analysis of the counterfactual: a merger and divestiture in the Australian cigarette industry," MPRA Paper 26713, University Library of Munich, Germany.
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