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Calibrating the AIDS and Multinomial Logit Models with Observed Product Margins

Author

Listed:
  • Gloria Sheu

    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

  • Charles Taragin

    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

Abstract

We show how observed product margins may be used in lieu of an observed market elasticity to calibrate parameters for two commonly used demand forms: the Almost Ideal Demand System (AIDS) and the multinomial logit. This technique is useful for antitrust practitioners interested in simulating the e ects of a merger, since estimates of product margins are often easier to obtain than estimates of market elasticities.

Suggested Citation

  • Gloria Sheu & Charles Taragin, 2012. "Calibrating the AIDS and Multinomial Logit Models with Observed Product Margins," EAG Discussions Papers 201207, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:201207
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    File URL: https://www.justice.gov/atr/public/eag/288189a.html
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    Cited by:

    1. Moresi, Serge & Zenger, Hans, 2018. "Recapture ratios in merger analysis," Economics Letters, Elsevier, vol. 170(C), pages 136-138.
    2. Gloria Sheu & Charles Taragin, 2021. "Simulating mergers in a vertical supply chain with bargaining," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 596-632, September.

    More about this item

    Keywords

    demand calibration; multinomial logit; almost ideal demand system; AIDS;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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