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Estimation of random coefficients logit demand models with interactive fixed effects

  • Hyungsik Roger Moon

    (Institute for Fiscal Studies)

  • Matthew Shum

    (Institute for Fiscal Studies)

  • Martin Weidner

    ()

    (Institute for Fiscal Studies and cemmap and UCL)

We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete-choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical application to US automobile demand.

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File URL: http://cemmap.ifs.org.uk/wps/cwp081212.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP08/12.

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Date of creation: Mar 2012
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Handle: RePEc:ifs:cemmap:08/12
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  1. 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.
  2. Steve Berry & Oliver B. Linton & Ariel Pakes, 2004. "Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 613-654.
  3. Alexei Onatski, 2005. "Determining the number of factors from empirical distribution of eigenvalues," Discussion Papers 0405-19, Columbia University, Department of Economics.
  4. Patrick Bajari & Jeremy T. Fox & Kyoo il Kim & Stephen P. Ryan, 2009. "A Simple Nonparametric Estimator for the Distribution of Random Coefficients," NBER Working Papers 15210, National Bureau of Economic Research, Inc.
  5. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  6. Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
  7. Hahn, Jinyong & Kuersteiner, Guido, 2011. "Bias Reduction For Dynamic Nonlinear Panel Models With Fixed Effects," Econometric Theory, Cambridge University Press, vol. 27(06), pages 1152-1191, December.
  8. Fox, Jeremy T. & Kim, Kyoo il & Ryan, Stephen P. & Bajari, Patrick, 2012. "The random coefficients logit model is identified," Journal of Econometrics, Elsevier, vol. 166(2), pages 204-212.
  9. Hyungsik Roger Moon & Martin Weidner, 2013. "Linear regression for panel with unknown number of factors as interactive fixed effects," CeMMAP working papers CWP49/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Christopher R. Knittel & Konstantinos Metaxoglou, 2014. "Estimation of Random-Coefficient Demand Models: Two Empiricists' Perspective," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 34-59, March.
  11. David Besanko & Ulrich Doraszelski, 2002. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," Computing in Economics and Finance 2002 196, Society for Computational Economics.
  12. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  13. J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, vol. 45(10), pages 1324-1338, October.
  14. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, 06.
  15. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  16. Alexei Onatski, 2010. "Determining the Number of Factors from Empirical Distribution of Eigenvalues," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1004-1016, November.
  17. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  18. Rosa L. Matzkin, 2013. "Nonparametric Identification in Structural Economic Models," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 457-486, 05.
  19. Chernozhukov, Victor & Hansen, Christian, 2006. "Instrumental quantile regression inference for structural and treatment effect models," Journal of Econometrics, Elsevier, vol. 132(2), pages 491-525, June.
  20. Jinyong Hahn & Whitney Newey, 2003. "Jackknife and analytical bias reduction for nonlinear panel models," CeMMAP working papers CWP17/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  21. Christopher R. Knittel & Konstantinos Metaxoglou, 2008. "Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings," NBER Working Papers 14080, National Bureau of Economic Research, Inc.
  22. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  23. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
  24. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, 07.
  25. Hyungsik Roger Moon & Martin Weidner, 2013. "Dynamic linear panel regression models with interactive fixed effects," CeMMAP working papers CWP63/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  26. Jushan Bai & Serena Ng, 2006. "Confidence Intervals for Diffusion Index Forecasts and Inference for Factor-Augmented Regressions," Econometrica, Econometric Society, vol. 74(4), pages 1133-1150, 07.
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