IDEAS home Printed from https://ideas.repec.org/a/ecm/emetrp/v81y2013i5p2087-2111.html
   My bibliography  Save this article

Connected Substitutes and Invertibility of Demand

Author

Listed:
  • Steven Berry
  • Amit Gandhi
  • Philip Haile

Abstract

We consider the invertibility of a nonparametric nonseparable demand system. Invertibility of demand is important in several contexts, including identification of demand, estimation of demand, testing of revealed preference, and economic theory requiring uniqueness of market clearing prices. We introduce the notion of "connected substitutes" and show that this structure is sufficient for invertibility. The connected substitutes conditions require weak substitution between all goods and sufficient strict substitution to necessitate treating them in a single demand system. These conditions are satisfied in many standard models, have transparent economic interpretation, and allow us to show invertibility without functional form restrictions, smoothness assumptions, or strong domain restrictions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Steven Berry & Amit Gandhi & Philip Haile, 2013. "Connected Substitutes and Invertibility of Demand," Econometrica, Econometric Society, vol. 81(5), pages 2087-2111, September.
  • Handle: RePEc:ecm:emetrp:v:81:y:2013:i:5:p:2087-2111
    DOI: ECTA10135
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.3982/ECTA10135
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    2. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    3. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    4. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
    5. Walter Beckert & Richard Blundell, 2008. "Heterogeneity and the Non-Parametric Analysis of Consumer Choice: Conditions for Invertibility," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1069-1080.
    6. Bresnahan, Timothy F., 1981. "Departures from marginal-cost pricing in the American automobile industry : Estimates for 1977-1978," Journal of Econometrics, Elsevier, vol. 17(2), pages 201-227, November.
    7. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
    8. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    9. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    10. repec:cdl:agrebk:663536 is not listed on IDEAS
    11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    12. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    13. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    14. Dick, Astrid A., 2008. "Demand estimation and consumer welfare in the banking industry," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1661-1676, August.
    15. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 277-311.
    16. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    17. Raymond Deneckere & Michael Rothschild, 1992. "Monopolistic Competition and Preference Diversity," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 361-373.
    18. Novshek, William & Sonnenschein, Hugo, 1979. "Marginal Consumers and Neoclassical Demand Theory," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1368-1376, December.
    19. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    20. Cheng, Leonard, 1985. "Inverting systems of demand functions," Journal of Economic Theory, Elsevier, vol. 37(1), pages 202-210, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Reynaert, Mathias & Verboven, Frank, 2014. "Improving the performance of random coefficients demand models: The role of optimal instruments," Journal of Econometrics, Elsevier, vol. 179(1), pages 83-98.
    2. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," 2018 Meeting Papers 627, Society for Economic Dynamics.
    3. Steven T. Berry & Philip A. Haile, 2011. "Identification in a Class of Nonparametric Simultaneous Equations Models," Cowles Foundation Discussion Papers 1787, Cowles Foundation for Research in Economics, Yale University.
    4. Fabian Dunker, 2015. "Convergence of the risk for nonparametric IV quantile regression and nonparametric IV regression with full independence," Papers 1511.03977, arXiv.org.
    5. Victor Aguirregabiria & Junichi Suzuki, 2014. "Identification and counterfactuals in dynamic models of market entry and exit," Quantitative Marketing and Economics (QME), Springer, vol. 12(3), pages 267-304, September.
    6. Naoki Wakamori, 2011. "Portfolio Considerations in Differentiated Product Purchases: An Application to the Japanese Automobile Market," Staff Working Papers 11-27, Bank of Canada.
    7. Khai Xiang Chiong & Alfred Galichon & Matt Shum, 2016. "Duality in dynamic discrete‐choice models," Quantitative Economics, Econometric Society, vol. 7(1), pages 83-115, March.
    8. Peter Davis & Pasquale Schiraldi, 2014. "The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 32-63, March.
    9. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    10. Hyungsik Roger Moon & Matthew Shum & Martin Weidner, 2012. "Estimation of random coefficients logit demand models with interactive fixed effects," CeMMAP working papers CWP08/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    11. Richard Blundell & Dennis Kristensen & Rosa Matzkin, 2017. "Individual counterfactuals with multidimensional unobserved heterogeneity," CeMMAP working papers CWP60/17, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    12. Steve Berry & Ahmed Khwaja & Vineet Kumar & Andres Musalem & Kenneth Wilbur & Greg Allenby & Bharat Anand & Pradeep Chintagunta & W. Hanemann & Przemek Jeziorski & Angelo Mele, 2014. "Structural models of complementary choices," Marketing Letters, Springer, vol. 25(3), pages 245-256, September.
    13. Nikhil Agarwal & Paulo Somaini, 2018. "Demand Analysis Using Strategic Reports: An Application to a School Choice Mechanism," Econometrica, Econometric Society, vol. 86(2), pages 391-444, March.

    More about this item

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:81:y:2013:i:5:p:2087-2111. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/essssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.