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Estimation of Unobserved Attributes Using a Control Function Approach, Modeling the Demand for Mint Flavored Gum

Author

Listed:
  • Daniel Toro-Gonzalez
  • Jia Yan
  • R. Karina Gallardo
  • Jill J. McCluskey

    (School of Economic Sciences, Washington State University)

Abstract

We analyze consumers’ demand for mint gum accounting for product heterogeneity and unobservable, to the econometrician, flavor quality. We use the control function (CF) approach in the context of a discrete choice logit model in an oligopolistic framework, where price-setting firms endogenously determine prices. We found that when using the control function approach, demand estimators are improved by reducing potential biases generated by endogeneity. We found that gum is price inelastic with respect to price and quality. Implications for the mint oil industry in the Pacific Northwest are cited.

Suggested Citation

  • Daniel Toro-Gonzalez & Jia Yan & R. Karina Gallardo & Jill J. McCluskey, 2013. "Estimation of Unobserved Attributes Using a Control Function Approach, Modeling the Demand for Mint Flavored Gum," Working Papers 2013-06, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:gallardo-7
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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/Gallardo/WP2013-6.pdf
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    References listed on IDEAS

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    5. Toro-González Daniel & Gallardo R. Karina & Yan Jia & McCluskey Jill J., 2013. "Quality Differentiation with Flavors: Demand Estimation of Unobserved Attributes," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 101-111, September.
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    1. Bakhtavoryan, Rafael & Capps, Oral & Salin, Victoria, 2014. "The Impact of Food Safety Incidents Across Brands: The Case of the Peter Pan Peanut Butter Recall," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(4), pages 559-573, November.

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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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