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Semiparametric estimation of CES demand system with observed and unobserved product characteristics

Author

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  • Joonhwi Joo

    (University of Chicago)

  • Ali Hortacsu

    (University of Chicago)

Abstract

We develop a demand estimation framework with observed and unobserved product char- acteristics based on CES preferences. We show that our demand system can nest the logit demand system with observed and unobserved product characteristics, which has been widely used since Berry (1994); Berry et al. (1995). Furthermore, the demand system we develop can directly accommodate zero market shares by separating the extensive and the intensive margins. We apply our framework to the scanner data of cola sales, which shows that the estimated demand curves can even be upward sloping if zero market shares are not properly accommodated.

Suggested Citation

  • Joonhwi Joo & Ali Hortacsu, 2016. "Semiparametric estimation of CES demand system with observed and unobserved product characteristics," 2016 Meeting Papers 36, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:36
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    References listed on IDEAS

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