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Identification in Differentiated Products Markets Using Market Level Data

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  • Steven T. Berry
  • Philip A. Haile

Abstract

We consider nonparametric identification in models of differentiated products markets, using only market level observables. On the demand side we consider a nonparametric random utility model nesting random coefficients discrete choice models widely used in applied work. We allow for product/market-specific unobservables, endogenous product characteristics (e.g., prices), and high-dimensional taste shocks with arbitrary correlation and heteroskedasticity. On the supply side we specify marginal costs nonparametrically, allow for unobserved firm heterogeneity, and nest a variety of equilibrium oligopoly models. We pursue two approaches to identification. One relies on instrumental variables conditions used previously to demonstrate identification in a nonparametric regression framework. With this approach we can show identification of the demand side without reference to a particular supply model. Adding the supply side allows identification of firms' marginal costs as well. Our second approach, more closely linked to classical identification arguments for supply and demand models, employs a change of variables approach. This leads to constructive identification results relying on exclusion and support conditions. Our results lead to a testable restriction that provides the first general formalization of Bresnahan's (1982) intuition for empirically discriminating between alternative models of oligopoly competition.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15641.

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Date of creation: Jan 2010
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Publication status: published as Steven Berry and Philip Haile (2014), \Identi cation in Di erentiated Products Markets Using Market Level Data," forthcoming Econometrica (an earlier version is Cowles Foundation Discussion Paper # 1744R.)
Handle: RePEc:nbr:nberwo:15641

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Cited by:
  1. Olivier Allais & Fabrice Etile & Sebastien Lecocq, 2013. "Mandatory Labels, taxes and market forces : An empirical evaluation of fat policies," Working Papers 221517, Institut National de la Recherche Agronomique, France.
  2. Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
  3. repec:hal:wpaper:halshs-00736556 is not listed on IDEAS
  4. Steven T. Berry & Philip A. Haile, 2009. "Nonparametric Identification of Multinomial Choice Demand Models with Heterogeneous Consumers," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1718, Cowles Foundation for Research in Economics, Yale University, revised Mar 2010.
  5. Steven T. Berry & Philip A. Haile, 2009. "Identification of a Heterogeneous Generalized Regression Model with Group Effects," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1732, Cowles Foundation for Research in Economics, Yale University.
  6. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.

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