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Endogenous Product Choice: A Progress Report

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  • Crawford, Gregory S

Abstract

Empirical models of differentiated product demand are widely used by both academics and practitioners. While these methods treat carefully the potential endogeneity of price, until recently they have assumed the number and characteristics of the products offered by firms are exogenous. This paper presents a progress report on an ongoing research agenda to address this issue. First, it summarizes how the appropriate choice of 'orthogonal' instruments can yield consistent estimates of own and cross-price elasticities in the presence of endogenous product characteristics. Second, it summarizes how to measure 'quality markups' and the welfare consequences of endogenous product quality in U.S. cable television markets. Related papers and extensions to consider multiple product characteristics and dynamics are also discussed.

Suggested Citation

  • Crawford, Gregory S, 2012. "Endogenous Product Choice: A Progress Report," CEPR Discussion Papers 8862, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8862
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    References listed on IDEAS

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    1. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
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    14. Gregory S. Crawford & Oleksandr Shcherbakov & Matthew Shum, 2015. "The welfare effects of endogenous quality choice in cable television markets," ECON - Working Papers 202, Department of Economics - University of Zurich.
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    Citations

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    Cited by:

    1. Reynaert, Mathias & Verboven, Frank, 2014. "Improving the performance of random coefficients demand models: The role of optimal instruments," Journal of Econometrics, Elsevier, vol. 179(1), pages 83-98.
    2. Ying Fan & Chenyu Yang, 2014. "Competition, Product Proliferation and Welfare: A Study of the U.S. Smartphone Market," Working Papers 14-14, NET Institute.
    3. repec:cje:issued:v:50:y:2017:i:5:p:1445-1488 is not listed on IDEAS
    4. Jiekai ZHANG, 2016. "The impact of advertising length caps on TV: Evidence from the French broadcast TV industry," Working Papers 16-06, NET Institute.
    5. Mitsukuni Nishida, 2012. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Economics Working Paper Archive 594, The Johns Hopkins University,Department of Economics.
    6. Jose A. Guajardo & Morris A. Cohen & Serguei Netessine, 2016. "Service Competition and Product Quality in the U.S. Automobile Industry," Management Science, INFORMS, vol. 62(7), pages 1860-1877, July.
    7. Crawford, Gregory S. & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare Effects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    8. Francesco Decarolis & Andrea Guglielmo, 2016. "Insurers' Response to Selection Risk: Evidence from Medicare Enrollment Reforms," NBER Working Papers 22876, National Bureau of Economic Research, Inc.
    9. David P. Byrne & Susumu Imai & Vasilis Sarafidis & Masayuki Hirukawa, 2015. "Instrument-free Identification and Estimation of Differentiated Products Models," Working Paper Series 26, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    10. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.

    More about this item

    Keywords

    Cable television; Endogenous product characteristics; Endogenous product choice; Endogenous quality; Orthogonal instruments; Welfare;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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