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Endogenous Product Choice : A Progress Report

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  • Crawford, Gregory S.

    (Department of Economics, University of Warwick)

Abstract

Empirical models of differentiated product demand are widely used by both academics and practitioners. While these methods treat carefully the potential endogeneity of price, until recently they have assumed the number and characteristics of the products o.ered by firms are exogenous. This paper presents a progress report on an ongoing research agenda to address this issue. First, it summarizes how the appropriate choice of “orthogonal” instruments can yield consistent estimates of own and cross-price elasticities in the presence of endogenous product characteristics. Second, it summarizes how to measure “quality markups” and the welfare consequences of endogenous product quality in U.S. cable television markets. Related papers and extensions to consider multiple product characteristics and dynamics are also discussed.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 979.

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Date of creation: 2012
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Handle: RePEc:wrk:warwec:979

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  1. Rachel Griffith & Lars Nesheim & Martin O'Connell, 2010. "Sin taxes in differentiated product oligopoly: an application to the butter and margarine market," CeMMAP working papers CWP37/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Andrew Sweeting, 2010. "The effects of mergers on product positioning: evidence from the music radio industry," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 372-397.
  3. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  4. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
  5. Brian McManus, 2007. "Nonlinear pricing in an oligopoly market: the case of specialty coffee," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 512-532, 06.
  6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  7. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 277-311, January.
  8. Michaela Draganska & Michael Mazzeo & Katja Seim, 2009. "Beyond plain vanilla: Modeling joint product assortment and pricing decisions," Quantitative Marketing and Economics, Springer, vol. 7(2), pages 105-146, June.
  9. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence From Radio Broadcasting," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1009-1025, August.
  10. David P.Byrne, 2011. "Consolidation and Price Discrimination in the Cable Television Industry," Department of Economics - Working Papers Series 1118, The University of Melbourne.
  11. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
  12. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  13. Tenn, Steven & Froeb, Luke & Tschantz, Steven, 2010. "Mergers when firms compete by choosing both price and promotion," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 695-707, November.
  14. Matt Shum & G Crawford, 2003. "Monopoly Quality Degradation in Cable Television," Economics Working Paper Archive 502, The Johns Hopkins University,Department of Economics.
  15. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
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Cited by:
  1. Mathias REYNAERT & Frank VERBOVEN, 2012. "Improving the performance of random coefficients demand models: the role of optimal instruments," Center for Economic Studies - Discussion papers ces12.07, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. Mitsukuni Nishida, 2012. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Economics Working Paper Archive 594, The Johns Hopkins University,Department of Economics.

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