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Asymptotic theory for differentiated products demand models with many markets

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  • Freyberger, Joachim

Abstract

This paper develops asymptotic theory for differentiated product demand models with a large number of markets T. It takes into account that the predicted market shares are approximated by Monte Carlo integration with R draws and that the observed market shares are approximated from a sample of N consumers. The estimated parameters are T consistent and asymptotically normal as long as R and N grow fast enough relative to T. Both approximations yield additional bias and variance terms in the asymptotic expansion. I propose a bias corrected estimator and a variance adjustment that takes the leading terms into account. Monte Carlo simulations show that these adjustments should be used in applications to avoid severe undercoverage caused by the approximation errors.

Suggested Citation

  • Freyberger, Joachim, 2015. "Asymptotic theory for differentiated products demand models with many markets," Journal of Econometrics, Elsevier, vol. 185(1), pages 162-181.
  • Handle: RePEc:eee:econom:v:185:y:2015:i:1:p:162-181
    DOI: 10.1016/j.jeconom.2014.10.009
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    More about this item

    Keywords

    Demand estimation; Differentiated products; Many markets; Bias correction; Adjusted standard errors;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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