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Bayesian analysis of random coefficient logit models using aggregate data

  • Jiang, Renna
  • Manchanda, Puneet
  • Rossi, Peter E.

We present a Bayesian approach for analyzing aggregate level sales data in a market with differentiated products. We consider the aggregate share model proposed by Berry et al. [Berry, Steven, Levinsohn, James, Pakes, Ariel, 1995. Automobile prices in market equilibrium. Econometrica. 63 (4), 841-890], which introduces a common demand shock into an aggregated random coefficient logit model. A full likelihood approach is possible with a specification of the distribution of the common demand shock. We introduce a reparameterization of the covariance matrix to improve the performance of the random walk Metropolis for covariance parameters. We illustrate the usefulness of our approach with both actual and simulated data. Sampling experiments show that our approach performs well relative to the GMM estimator even in the presence of a mis-specified shock distribution. We view our approach as useful for those who are willing to trade off one additional distributional assumption for increased efficiency in estimation.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 149 (2009)
Issue (Month): 2 (April)
Pages: 136-148

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Handle: RePEc:eee:econom:v:149:y:2009:i:2:p:136-148
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
  2. K. Sudhir, 2001. "Competitive Pricing Behavior in the Auto Market: A Structural Analysis," Marketing Science, INFORMS, vol. 20(1), pages 42-60, January.
  3. K. Sudhir, 2001. "Competitive Pricing Behavior in the US Auto Market: A Structural Analysis," Yale School of Management Working Papers ysm228, Yale School of Management.
  4. Charles Romeo, 2007. "A Gibbs sampler for mixed logit analysis of differentiated product markets using aggregate data," Computational Economics, Society for Computational Economics, vol. 29(1), pages 33-68, February.
  5. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  6. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
  7. Pradeep Chintagunta & Jean-Pierre Dubé & Vishal Singh, 2003. "Balancing Profitability and Customer Welfare in a Supermarket Chain," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 111-147, March.
  8. 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.
  9. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
  10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  11. Sha Yang & Yuxin Chen & Greg Allenby, 2003. "Bayesian Analysis of Simultaneous Demand and Supply," Quantitative Marketing and Economics, Springer, vol. 1(3), pages 251-275, September.
  12. Avi Goldfarb & Qiang Lu & Sridhar Moorthy, 2007. "Measuring Brand Value in an Equilibrium Framework," Food Marketing Policy Center Research Reports 099, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  13. Conley, Timothy G. & Hansen, Christian B. & McCulloch, Robert E. & Rossi, Peter E., 2008. "A semi-parametric Bayesian approach to the instrumental variable problem," Journal of Econometrics, Elsevier, vol. 144(1), pages 276-305, May.
  14. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  15. Goettler, Ronald L & Shachar, Ron, 2001. "Spatial Competition in the Network Television Industry," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 624-56, Winter.
  16. Han Hong, 2007. "A Statistical Inquiry into the Plausibility of Recursive Utility," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 5(4), pages 523-559, Fall.
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