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Bayesian Analysis of Simultaneous Demand and Supply

  • Sha Yang

    ()

  • Yuxin Chen

    ()

  • Greg Allenby

    ()

In models of demand and supply, consumer price sensitivity affects both the sales of a good through price, and the price that is set by producers and retailers. The relationship between the dependent variables (e.g., demand and price) and the common parameters (e.g., price sensitivity) is typically non-linear, especially when heterogeneity is present. In this paper, we develop a Bayesian method to address the computational challenge of estimating simultaneous demand and supply models that can be applied to both the analysis of household panel data and aggregated demand data. The method is developed within the context of a heterogeneous discrete choice model coupled with pricing equations derived from either specific competitive structures, or linear equations of the kind used in instrumental variable estimation, and applied to a scanner panel dataset of light beer purchases. Our analysis indicates that incorporating heterogeneity into the demand model all but eliminates the bias in the price parameter due to the endogeneity of price. The analysis also supports the use of a full information analysis. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/B:QMEC.0000003327.55605.26
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Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 1 (2003)
Issue (Month): 3 (September)
Pages: 251-275

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Handle: RePEc:kap:qmktec:v:1:y:2003:i:3:p:251-275
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  1. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
  2. 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.
  3. K. Sudhir, 2001. "Competitive Pricing Behavior in the Auto Market: A Structural Analysis," Marketing Science, INFORMS, vol. 20(1), pages 42-60, January.
  4. Michaela Draganska & Dipak Jain, 2002. "Structural Models of Competitive Market Behavior: An Estimation Approach Using Disaggregate Data," Computing in Economics and Finance 2002 61, Society for Computational Economics.
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