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Estimation of demand systems based on elasticities of substitution

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  • Germán Coloma

Abstract

This paper develops a model for demand-system estimations, whose coefficients are own-price Marshallian elasticities and elasticities of substitution between goods. The model satisfies the homogeneity, symmetry and, eventually, adding-up restrictions implied by consumer theory, and is primarily useful for the estimation of the demands of several goods of the same industry or group of products. The characteristics of the model are compared to other existing alternatives (logarithmic, translog, AIDS and QUAIDS demand systems). The model is finally applied to estimate the demands for several carbonated soft drinks in Argentina, and its results are presented, together with the ones obtained with the other estimation methods.

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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 322.

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Length: 22 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:cem:doctra:322

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Keywords: Demand Systems; Elasticity of Substitution; Simultaneous Equations; Carbonated Soft Drinks;

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  1. McElroy, Marjorie B., 1977. "Goodness of fit for seemingly unrelated regressions : Glahn's R2y.x and Hooper's r2," Journal of Econometrics, Elsevier, vol. 6(3), pages 381-387, November.
  2. Tirtha Dhar & Jean-Paul Chavas & Ronald W. Cotterill & Brian W. Gould, 2005. "An Econometric Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and PepsiCo," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 905-931, December.
  3. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September.
  4. Jeffrey T. LaFrance & W. Michael Hanemann, 1989. "The Dual Structure of Incomplete Demand Systems," Development Research Unit Working Paper Series archive-21, Monash University, Department of Economics.
  5. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  6. Jeffrey T. LaFrance, 1986. "The Structure of Constant Elasticity Demand Models," Development Research Unit Working Paper Series archive-28, Monash University, Department of Economics.
  7. Moschini, GianCarlo & Vissa, A., 1993. "Flexible Specification of Mixed Demand Systems," Staff General Research Papers 11249, Iowa State University, Department of Economics.
  8. Roy J. Epstein & Daniel L. Rubinfeld, 2002. "Merger Simulation: A Simplified Approach with New Applications," Industrial Organization 0201002, EconWPA.
  9. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  10. Alston, Julian M & Foster, Kenneth A & Green, Richard D, 1994. "Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 351-56, May.
  11. Julian Alston & James Chalfant & Nicholas Piggott, 2002. "Estimating and testing the compensated double-log demand model," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1177-1186.
  12. Barten, Anton P, 1993. "Consumer Allocation Models: Choice of Functional Form," Empirical Economics, Springer, vol. 18(1), pages 129-58.
  13. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
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