IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/8862.html
   My bibliography  Save this paper

Endogenous Product Choice: A Progress Report

Author

Listed:
  • Crawford, Gregory

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, 2012. "Endogenous Product Choice: A Progress Report," CEPR Discussion Papers 8862, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8862
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP8862
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chenghuan Sean Chu, 2010. "The effect of satellite entry on cable television prices and product quality," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 730-764, December.
    2. 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.
    3. Tenn, Steven & Froeb, Luke & Tschantz, Steven, 2010. "Mergers when firms compete by choosing both price and promotion," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 695-707, November.
    4. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    5. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
    6. Rachel Griffith & Lars Nesheim & Martin O'Connell, 2010. "Sin taxes in differentiated product oligopoly: an application to the butter and margarine market," CeMMAP working papers CWP37/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    7. Brian McManus, 2007. "Nonlinear pricing in an oligopoly market: the case of specialty coffee," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 512-532, June.
    8. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 277-311.
    9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    10. 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.
    11. Matt Shum & G Crawford, 2003. "Monopoly Quality Degradation in Cable Television," Economics Working Paper Archive 502, The Johns Hopkins University,Department of Economics.
    12. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    13. Michaela Draganska & Michael Mazzeo & Katja Seim, 2009. "Beyond plain vanilla: Modeling joint product assortment and pricing decisions," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 105-146, June.
    14. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    15. David P.Byrne, 2011. "Consolidation and Price Discrimination in the Cable Television Industry," Department of Economics - Working Papers Series 1118, The University of Melbourne.
    16. Crawford, Gregory & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare E ects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    17. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    18. Alon Eizenberg, 2014. "Upstream Innovation and Product Variety in the U.S. Home PC Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1003-1045.
    19. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence from Radio Broadcasting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1009-1025.
    20. Andrew Sweeting, 2010. "The effects of mergers on product positioning: evidence from the music radio industry," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 372-397, June.
    21. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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, 2020. "Competition, Product Proliferation, and Welfare: A Study of the US Smartphone Market," American Economic Journal: Microeconomics, American Economic Association, vol. 12(2), pages 99-134, May.
    3. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    4. Kali P. Rath & Gongyun Zhao, 2021. "On the insufficiency of some conditions for minimal product differentiation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 53-65, April.
    5. Jiekai ZHANG, 2016. "The impact of advertising length caps on TV: Evidence from the French broadcast TV industry," Working Papers 16-06, NET Institute.
    6. Decarolis, Francesco & Guglielmo, Andrea, 2017. "Insurers’ response to selection risk: Evidence from Medicare enrollment reforms," Journal of Health Economics, Elsevier, vol. 56(C), pages 383-396.
    7. Craig Garthwaite & Christopher Ody & Amanda Starc, 2020. "Endogenous Quality Investments in the U.S. Hospital Market," NBER Working Papers 27440, National Bureau of Economic Research, Inc.
    8. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    9. Justin P. Johnson & Andrew Rhodes, 2021. "Multiproduct mergers and quality competition," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 633-661, September.
    10. Mitsukuni Nishida, 2015. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Marketing Science, INFORMS, vol. 34(1), pages 20-38, January.
    11. Garthwaite, Craig & Ody, Christopher & Starc, Amanda, 2022. "Endogenous quality investments in the U.S. hospital market," Journal of Health Economics, Elsevier, vol. 84(C).
    12. 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.
    13. 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.
    14. Hickman, William & Mortimer, Julie Holland, 2016. "Demand Estimation with Availability Variation," SocArXiv qe69j, Center for Open Science.
    15. 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.
    16. Hongmin Li & Scott Webster & Gwangjae Yu, 2020. "Product Design Under Multinomial Logit Choices: Optimization of Quality and Prices in an Evolving Product Line," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 1011-1025, September.
    17. Crawford, Gregory & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare E ects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    18. Xuan Teng, 2022. "Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets," CESifo Working Paper Series 10042, CESifo.
    19. Griffith, Rachel & Crawford, Gregory & Iaria, Alessandro, 2016. "Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets," CEPR Discussion Papers 11675, C.E.P.R. Discussion Papers.
    20. Miravete, Eugenio & Moral, Maria & Thurk, Jeff, 2015. "Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles," CEPR Discussion Papers 10783, C.E.P.R. Discussion Papers.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Crawford, Gregory S., 2012. "Endogenous Product Choice: A Progress Report," Economic Research Papers 270745, University of Warwick - Department of Economics.
    2. 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.
    3. Crawford, Gregory & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare E ects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    4. Steven Berry & Alon Eizenberg & Joel Waldfogel, 2016. "Optimal product variety in radio markets," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 463-497, August.
    5. Bauner, Christoph & Wang, Emily, 2019. "The effect of competition on pricing and product positioning: Evidence from wholesale club entry," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    6. Steven T. Berry & Philip A. Haile, 2014. "Identification in Differentiated Products Markets Using Market Level Data," Econometrica, Econometric Society, vol. 82(5), pages 1749-1797, September.
    7. Federico Rossi, 2023. "Mergers with endogenous product choice: The case of the ready-to-eat cereal industry," Quantitative Marketing and Economics (QME), Springer, vol. 21(1), pages 1-64, March.
    8. Mitsukuni Nishida, 2015. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Marketing Science, INFORMS, vol. 34(1), pages 20-38, January.
    9. Felix Montag, 2023. "Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry," Rationality and Competition Discussion Paper Series 378, CRC TRR 190 Rationality and Competition.
    10. Crawford, Gregory S & Shum, Matthew, 2007. "Monopoly Quality Degradation and Regulation in Cable Television," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 181-219, February.
    11. Ying Fan & Chenyu Yang, 2020. "Competition, Product Proliferation, and Welfare: A Study of the US Smartphone Market," American Economic Journal: Microeconomics, American Economic Association, vol. 12(2), pages 99-134, May.
    12. Byrne, David P. & Imai, Susumu & Jain, Neelam & Sarafidis, Vasilis, 2022. "Instrument-free identification and estimation of differentiated products models using cost data," Journal of Econometrics, Elsevier, vol. 228(2), pages 278-301.
    13. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    14. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56, Edward Elgar Publishing.
    15. Cohen, Andrew, 2008. "Package size and price discrimination in the paper towel market," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 502-516, March.
    16. Brueckner, Jan K. & Luo, Dan, 2014. "Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency," Economics of Transportation, Elsevier, vol. 3(1), pages 102-115.
    17. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    18. Aaron Bodoh-Creed & Brent Hickman & John List & Ian Muir & Gregory Sun, 2023. "Stress Testing Structural Models of Unobserved Heterogeneity: Robust Inference on Optimal Nonlinear Pricing," Natural Field Experiments 00776, The Field Experiments Website.
    19. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2015. "Endogenous Mergers in Vertically Differentiated Markets," MPRA Paper 68318, University Library of Munich, Germany.
    20. Montag, Felix, 2023. "Mergers, foreign competition, and jobs: Evidence from the U.S. appliance industry," Working Papers 326, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.

    More about this item

    Keywords

    Cable television; Endogenous product characteristics; Endogenous product choice; Endogenous quality; Orthogonal instruments; Welfare;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cpr:ceprdp:8862. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.cepr.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.