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Consumer Demand Estimation

Author

Listed:
  • Merino Troncoso, Carlos

Abstract

In this chapter I will review the main methodologies used in economics for demand estimation, focusing on recent trends such as the structural approach and machine learning techniques. As one can imagine the literature review is extensive so due to space limitations I can only provide a summarized view of each theory. Nevertheless, the interested reader has a comprehensive bibliography at the end of the chapter for extensions and examples. There is also another barrier when explaining any concept in economics. Economics is widely based on Mathematics, Statistics and Econometrics so it is not possible to explain it without its usage. As it is not possible review econometrics and mathematics in this chapter I will refer to specific texts, and an appendix will give the reader a brief summary of the main concepts. Demand is usually the first step in the study of a market. Intuitively, suppliers only start production when they identify consumer interest in a particular good. All models reviewed try to solve the problems that traditionally have embarrassed demand estimation: identification, endogeneity and simultaneity. There is no perfect solution to them, each model has its advantages and limitations and are based on assumptions that are often irreal, so the model in itself is in all cases only an approximation of demand.

Suggested Citation

  • Merino Troncoso, Carlos, 2021. "Consumer Demand Estimation," MPRA Paper 105169, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105169
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    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 69-85, Fall.
    3. 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.
    4. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    5. Patrick Bajari & Denis Nekipelov & Stephen P. Ryan & Miaoyu Yang, 2015. "Machine Learning Methods for Demand Estimation," American Economic Review, American Economic Association, vol. 105(5), pages 481-485, May.
    6. repec:fth:prinin:455 is not listed on IDEAS
    7. Eric Rasmusen, 2006. "The BLP Method of Demand Curve Estimation in Industrial Organization," Working Papers 2006-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    8. E. J. Working, 1927. "What Do Statistical "Demand Curves" Show?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 41(2), pages 212-235.
    9. Peter Davis & Eliana Garcés, 2009. "Quantitative Techniques for Competition and Antitrust Analysis," Economics Books, Princeton University Press, edition 1, number 9078, December.
    10. Holbrook Working, 1925. "The Statistical Determination of Demand Curves," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 39(4), pages 503-543.
    11. Alexandre Belloni & Victor Chernozhukov & Christian Hansen, 2014. "High-Dimensional Methods and Inference on Structural and Treatment Effects," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 29-50, Spring.
    12. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    13. Joshua Angrist & Alan Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Working Papers 834, Princeton University, Department of Economics, Industrial Relations Section..
    14. Bresnahan, Timothy F, 1987. "Competition and Collusion in the American Automobile Industry: The 1955 Price War," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 457-482, June.
    15. Merino Troncoso, Carlos, 2019. "Market power and welfare loss," MPRA Paper 96902, University Library of Munich, Germany.
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    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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