Estimating demand for differentiated products with error in market shares
In this paper we introduce a new approach to estimating a differentiated product demand system that allows for error in market shares as measures of choice probabilities. In particular, our approach allows for products with zero sales in the data, which is a frequent phenomenon that arises in product differentiated markets but lies outside the scope of existing demand estimation techniques. Although we find that error in market shares generally undermine the standard point identification of discrete choice models of demand, we exploit shape restrictions on demand implied by discrete choice to generate a system of moment inequalities that partially identify demand parameters. These moment inequalities are fully robust to the variability in market shares yet are also adaptive to the information revealed by market shares in a way that allows for informative inferences. In addition, we construct a profiling approach for parameter inference with moment inequalities, making it feasible to study models with a large number of parameters (as typically required in demand applications) by focusing attention on a profile of the parameters, such as the price coefficient. We use our approach to study consumer demand from scanner data using the Dominick's Finer Foods database, and find that even for the baseline logit model, demand elasticities nearly double when the full error in market shares is taken into account.
|Date of creation:||Feb 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+44) 020 7291 4800
Fax: (+44) 020 7323 4780
Web page: http://cemmap.ifs.org.uk
More information through EDIRC
|Order Information:|| Postal: The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven Berry & Panle Jia, 2008.
"Tracing the Woes: An Empirical Analysis of the Airline Industry,"
NBER Working Papers
14503, National Bureau of Economic Research, Inc.
- Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
- John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
- Harikesh Nair & Jean-Pierre Dubé & Pradeep Chintagunta, 2005.
"Accounting for Primary and Secondary Demand Effects with Aggregate Data,"
INFORMS, vol. 24(3), pages 444-460, November.
- Nair, Harikesh S. & Dube, Jean-Pierre & Chintagunta, Pradeep, 2004. "Accounting for Primary and Secondary Demand Effects with Aggregate Data," Research Papers 1949, Stanford University, Graduate School of Business.
- Guillermo Israilevich, 2004. "Assessing Supermarket Product-Line Decisions: The Impact of Slotting Fees," Quantitative Marketing and Economics, Springer, vol. 2(2), pages 141-167, June.
- Joseph P. Romano & Azeem M. Shaikh, 2010. "Inference for the Identified Set in Partially Identified Econometric Models," Econometrica, Econometric Society, vol. 78(1), pages 169-211, 01.
- Hausman, Jerry A & Leonard, Gregory K, 2002. "The Competitive Effects of a New Product Introduction: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 237-63, September.
- Andrews, Donald W K & Monahan, J Christopher, 1992.
"An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator,"
Econometric Society, vol. 60(4), pages 953-66, July.
- Donald W.K. Andrews & Christopher J. Monahan, 1990. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Cowles Foundation Discussion Papers 942, Cowles Foundation for Research in Economics, Yale University.
- Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, 03.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
When requesting a correction, please mention this item's handle: RePEc:ifs:cemmap:03/13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benita Rajania)
If references are entirely missing, you can add them using this form.