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Identification and Estimation of Online Price Competition With an Unknown Number of Firms

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  • Yonghong An
  • Michael R. Baye
  • Yingyao Hu
  • John Morgan
  • Matt Shum

Abstract

This paper considers identification and estimation of a general model for online price competition. We show that when the number of competing firms is unknown, the underlying parameters of the model can still be identified and estimated employing recently developed results on measurement error. With the estimates of model parameters, we are able to analyze the competitive effects of online competition when the number of firms changes. We illustrate our methodology using UK data for personal digital assistants and employ the estimates to simulate competitive effects. Our results reveal that heightened competition has differential effects on the prices paid by different consumer segments.
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Suggested Citation

  • Yonghong An & Michael R. Baye & Yingyao Hu & John Morgan & Matt Shum, 2017. "Identification and Estimation of Online Price Competition With an Unknown Number of Firms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(1), pages 80-102, January.
    • Handle: RePEc:wly:japmet:v:32:y:2017:i:1:p:80-102
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    6. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2009. "Clicks, Discontinuities, and Firm Demand Online," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 935-975, December.
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    Cited by:

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    2. Moraga-Gonzalez, Jose L. & Wildenbeest, Matthijs R., 2011. "Comparison sites," IESE Research Papers D/933, IESE Business School.
      • Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2011. "Comparison Sites," Working Papers 2011-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    3. Raúl Bajo-Buenestado, 2021. "Market prices, spatial distribution of consumers and firms’ optimal locations in a linear city," Empirical Economics, Springer, vol. 61(1), pages 443-467, July.
    4. Shelegia, Sandro & Wilson, Chris, 2016. "A Generalized Model of Sales," EconStor Preprints 147411, ZBW - Leibniz Information Centre for Economics.
    5. Hu, Yingyao, 2017. "The econometrics of unobservables: Applications of measurement error models in empirical industrial organization and labor economics," Journal of Econometrics, Elsevier, vol. 200(2), pages 154-168.
    6. Zhang, Yinjunjie & Xu, Zhicheng Phil & Palma, Marco A., 2017. "Misclassification Errors of Subjective Well-being: A New Approach to Mapping Happiness," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258553, Agricultural and Applied Economics Association.
    7. Yingyao Hu, 2015. "Microeconomic models with latent variables: applications of measurement error models in empirical industrial organization and labor economics," CeMMAP working papers 03/15, Institute for Fiscal Studies.
    8. Yingyao Hu, 2015. "Microeconomic models with latent variables: applications of measurement error models in empirical industrial organization and labor economics," CeMMAP working papers CWP03/15, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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    • L0 - Industrial Organization - - General

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