IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v36y20054p771-788.html

Unobserved Product Differentiation in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects

Author

Listed:
  • Daniel A. Ackerberg

    (University of California at Los Angeles)

  • Marc Rysman

    (Boston University)

Abstract

Commonly used discrete-choice models such as logit, nested logit, and random-coefficients models place very strong restrictions on how unobservable characteristic space changes with the number of products. We argue (and show with Monte Carlo experiments)that these restrictions can lead to biased estimates of price elasticities and the welfare consequences from additional products. In addition, these restrictions can identify parameters that are not intuitively identified given the data at hand. We suggest an alternative model that does not have these properties and present a structural interpretation of the model. Monte Carlo experiments and an empirical example show that this issue can be important in practice.

Suggested Citation

  • Daniel A. Ackerberg & Marc Rysman, 2005. "Unobserved Product Differentiation in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 771-788, Winter.
    • Handle: RePEc:rje:randje:v:36:y:2005:4:p:771-788
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    Other versions of this item:

    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

    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:rje:randje:v:36:y:2005:4:p:771-788. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.