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Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market

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  • Steven Berry
  • James Levinsohn
  • Ariel Pakes

Abstract

In this paper, we consider how rich sources of information on consumer choice can help to identify demand parameters in a widely used class of differentiated products demand models. Most important, we show how to use "second-choice" data on automotive purchases to obtain good estimates of substitution patterns in the automobile industry. We use our estimates to make out-of-sample predictions about important recent changes in industry structure.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 112 (2004)
Issue (Month): 1 (February)
Pages: 68-105

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Handle: RePEc:ucp:jpolec:v:112:y:2004:i:1:p:68-105

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  1. Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
  2. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  3. Imbens, Guido W & Lancaster, Tony, 1994. "Combining Micro and Macro Data in Microeconometric Models," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 655-80, October.
  4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  5. Cosslett, Stephen R, 1981. "Maximum Likelihood Estimator for Choice-Based Samples," Econometrica, Econometric Society, vol. 49(5), pages 1289-1316, September.
  6. Ichimura, Hidehiko & Thompson, T. Scott, 1998. "Maximum likelihood estimation of a binary choice model with random coefficients of unknown distribution," Journal of Econometrics, Elsevier, vol. 86(2), pages 269-295, June.
  7. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  9. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  10. Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc.
  11. Steven Berry & Michael Carnall & Pablo T. Spiller, 1996. "Airline Hubs: Costs, Markups and the Implications of Customer Heterogeneity," NBER Working Papers 5561, National Bureau of Economic Research, Inc.
  12. J. A. Hausman & D. A. Wise, 1976. "A Conditional Profit Model for Qualitative Choice: Discrete Decisions Recognizing Interdependence and Heterogeneous Preferences," Working papers 173, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Ariel Pakes & Steven Olley, 1994. "A Limit Theorem for a Smooth Class of Semiparametric Estimators," Cowles Foundation Discussion Papers 1066, Cowles Foundation for Research in Economics, Yale University.
  14. McCulloch, Robert E. & Polson, Nicholas G. & Rossi, Peter E., 2000. "A Bayesian analysis of the multinomial probit model with fully identified parameters," Journal of Econometrics, Elsevier, vol. 99(1), pages 173-193, November.
  15. James J. Heckman & James M. Snyder, Jr., 1996. "Linear Probability Models of the Demand for Attributes with an Empirical Application to Estimating the Preferences of Legislators," NBER Working Papers 5785, National Bureau of Economic Research, Inc.
  16. Manski, Charles F & Lerman, Steven R, 1977. "The Estimation of Choice Probabilities from Choice Based Samples," Econometrica, Econometric Society, vol. 45(8), pages 1977-88, November.
  17. Pakes, Ariel & Berry, Steven & Levinsohn, James A, 1993. "Applications and Limitations of Some Recent Advances in Empirical Industrial Organization: Price Indexes and the Analysis of Environmental Change," American Economic Review, American Economic Association, vol. 83(2), pages 241-46, May.
  18. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  19. Feenstra, Robert C & Levinsohn, James A, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 19-52, January.
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