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Instrument-free Identification And Estimation Of Differentiated Products Models

Author

Listed:
  • David Byrne

    (University of Melbourne)

  • Masayuki Hirukawa

    (Setsunan University)

  • Susumu Imai

    (Queen's University)

  • Vasilis Sarafidis

    (Monash University)

Abstract

We propose a new methodology for estimating the demand and cost functions of differentiated products models when demand and cost data are available. The method deals with the endogeneity of prices to demand shocks and the endogeneity of outputs to cost shocks, but does not require instruments for identification.We establish non-parametric identification, consistency and asymptotic normality of our estimator. Using Monte-Carlo experiments,we show our method works well in contexts where instruments are correlated with demand and cost shocks, and where commonly-used instrumental variables estimators are biased and numerically unstable.

Suggested Citation

  • David Byrne & Masayuki Hirukawa & Susumu Imai & Vasilis Sarafidis, 2015. "Instrument-free Identification And Estimation Of Differentiated Products Models," Working Paper 1336, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1336
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    More about this item

    Keywords

    Instrument-free; Differentiated goods oligopoly; BLP; parametric identification; nonparametric identification; sieve;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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