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Embedding consumer taste for location into a structural model of equilibrium

Author Info

Listed author(s):
  • Ciara Whelan
  • Franco Mariuzzo
  • Patrick P. Walsh

Abstract

Given that brands (products) are location specific in terms of coverage of retail stores, we allow consumers to have preferences over location and products to carry distribution costs, alongside preferences and costs over other observable and unobservable product characteristics. We embed these considerations into Berry, Levinsohn and Pakes (1995) to jointly estimate demand and cost parameters for brands (products) in Retail Carbonated Soft Drinks. Allowing for location has a very significant impact on estimated primitives and the predictive power of the structural model. As a counterfactual exercise we show the effects on welfare of an equilibrium that results from a change in the distribution of consumer taste for location.

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File URL: http://hdl.handle.net/10197/140
File Function: First version, 2005
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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200503.

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Date of creation: Jan 2005
Handle: RePEc:ucn:wpaper:200503
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Web page: http://www.ucd.ie/economics

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Keywords: Consumer taste for location distributions; Differentiated products; Discrete choice; Aggregation; Structural model; Retail carbonated soft drinks; Consumers' preferences; Product differentiation; Soft drinks;

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Find related papers by JEL classification:
  • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
  • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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  1. Walsh, Patrick Paul & Whelan, Ciara, 1999. "Modelling Price Dispersion as an Outcome of Competition in the Irish Grocery Market," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 325-343, September.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
  3. repec:adr:anecst:y:1994:i:34 is not listed on IDEAS
  4. 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.
  5. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09.
  6. Jerry Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annals of Economics and Statistics, GENES, issue 34, pages 143-157.
  7. repec:adr:anecst:y:1994:i:34:p:06 is not listed on IDEAS
  8. Franco Mariuzzo & Patrick Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3), pages 283-299, December.
  9. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
  10. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
  11. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
  12. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
  13. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
  14. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
  15. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
  16. Patrick Paul Walsh & Ciara Whelan, 2002. "Portfolio Effects and Firm Size Distribution - Carbonated Soft Drinks," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 43-54.
  17. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-1057, September.
  18. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
  19. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
  20. Patrick P. Walsh & Ciara Whelan, 2001. "Product differentiation and firm size distribution : an application to carbonated soft drinks," Working Papers 200113, School of Economics, University College Dublin.
  21. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
  22. 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.
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Cited by:

  1. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo Group Munich.
  2. repec:tcd:wpaper:tep10 is not listed on IDEAS
  3. Franco Mariuzzo & Patrick P. Walsh & Ciara Whelan, 2005. "Merger control in differentiated product industries," Working Papers 200508, School of Economics, University College Dublin.
  4. Patrick Paul Walsh & Franco Mariuzzo & Ciara Whelan, 2005. "Merger Control in Differentiated Product," Trinity Economics Papers 2000510, Trinity College Dublin, Department of Economics.

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