A Likelihood Approach to Estimating Market Equilibrium Models
This paper develops a new likelihood-based method for the simultaneous estimation of structural demand-and-supply models for markets with differentiated products. We specify an individual-level discrete-choice model of demand and derive the supply side assuming manufacturers compete in prices. The proposed estimation method considers price endogeneity through simultaneous estimation of demand and supply, allows for consumer heterogeneity, and incorporates a pricing rule consistent with economic theory. The basic idea behind the proposed estimation procedure is to simulate prices and choice probabilities by solving for the market equilibrium. By repeating this many times, we obtain an empirical distribution of equilibrium prices and probabilities. The empirical distribution is then smoothed and used in a likelihood procedure to estimate the parameters of the model. The advantage of this method is that it avoids the need to perform a transformation of variables. If the tastes of consumers are independent across market periods, our approach yields maximum likelihood estimates; otherwise, it yields consistent but not fully efficient partial likelihood estimates.
Volume (Year): 50 (2004)
Issue (Month): 5 (May)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nevo, Aviv, 1998.
"Measuring Market Power in the Ready-To-Eat Cereal Industry,"
25164, University of Connecticut, Food Marketing Policy Center.
- Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-42, March.
- Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
- Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Food Marketing Policy Center Research Reports 037, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
- Daniel McFadden, 1987.
"A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration,"
464, Massachusetts Institute of Technology (MIT), Department of Economics.
- McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
- David Besanko & Jean-Pierre Dubé & Sachin Gupta, 2003. "Competitive Price Discrimination Strategies in a Vertical Channel Using Aggregate Retail Data," Management Science, INFORMS, vol. 49(9), pages 1121-1138, September.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
- Peter M. Guadagni & John D. C. Little, 1983. "A Logit Model of Brand Choice Calibrated on Scanner Data," Marketing Science, INFORMS, vol. 2(3), pages 203-238.
- J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, vol. 45(10), pages 1324-1338, October.
- Füsun Gönül & Kannan Srinivasan, 1993. "Modeling Multiple Sources of Heterogeneity in Multinomial Logit Models: Methodological and Managerial Issues," Marketing Science, INFORMS, vol. 12(3), pages 213-229.
- 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.
- John Kennan, 1989. "Simultaneous Equations Bias in Disaggregated Econometric Models," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 151-156.
- 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.
- Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
- David Besanko & Sachin Gupta & Dipak Jain, 1998. "Logit Demand Estimation Under Competitive Pricing Behavior: An Equilibrium Framework," Management Science, INFORMS, vol. 44(11-Part-1), pages 1533-1547, November.
- Naufel J. Vilcassim & Vrinda Kadiyali & Pradeep K. Chintagunta, 1999. "Investigating Dynamic Multifirm Market Interactions in Price and Advertising," Management Science, INFORMS, vol. 45(4), pages 499-518, April.
- Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-76, Fall.
- Burnkrant, Robert E & Unnava, H Rao, 1995. " Effects of Self-Referencing on Persuasion," Journal of Consumer Research, Oxford University Press, vol. 22(1), pages 17-26, June.
- Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, 03.
- Sha Yang & Yuxin Chen & Greg Allenby, 2003. "Reply to Comments on “Bayesian Analysis of Simultaneous Demand and Supply”," Quantitative Marketing and Economics, Springer, vol. 1(3), pages 299-304, September.
- Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:605-616. 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: (Mirko Janc)
If references are entirely missing, you can add them using this form.