Identification and Estimation of Discrete Choice Demand Models when Observed and Unobserved Characteristics are Correlated / Amil Petrin, Mark Ponder, Boyoung Seo.

By:

Petrin, Amil

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w30778.Publication details: Cambridge, Mass. National Bureau of Economic Research 2022.Description: 1 online resource: illustrations (black and white)Subject(s):

Other classification:

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: The standard Berry, Levinsohn, and Pakes (1995) (BLP) approach to estimation of demand and supply parameters assumes that the product characteristic observed by consumers and producers but not the researcher is conditionally mean independent of observed characteristics. We extend BLP to allow all product characteristics to be endogenous, so the unobserved characteristic can be correlated with the observed characteristics. We derive moment conditions based on the assumption that firms choose product characteristics to maximize expected profits given their beliefs at that time about market conditions and that the "mistake" in the amount of the characteristic that is revealed once all products are on the market is conditionally mean independent of the firm's information set. Using the original BLP dataset we find that observed and unobserved product characteristics are highly positively correlated, biasing demand elasticities upward, as average estimated price elasticities double in absolute value and average markups fall by 50%.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w30778 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w30775 Search Frictions and Product Design in the Municipal Bond Market /	nber w30776 Lasting Scars: The Impact of Depression in Early Adulthood on Subsequent Labor Market Outcomes /	nber w30777 Refining Public Policies with Machine Learning: The Case of Tax Auditing /	nber w30778 Identification and Estimation of Discrete Choice Demand Models when Observed and Unobserved Characteristics are Correlated /	nber w30779 The Economics of the Public Option: Evidence from Local Pharmaceutical Markets /	nber w3078 Tax Compliance: An Investigation Using Individual TCMP Data /	nber w30780 Tournament-Style Political Competition and Local Protectionism: Theory and Evidence from China /	Next

December 2022.

The standard Berry, Levinsohn, and Pakes (1995) (BLP) approach to estimation of demand and supply parameters assumes that the product characteristic observed by consumers and producers but not the researcher is conditionally mean independent of observed characteristics. We extend BLP to allow all product characteristics to be endogenous, so the unobserved characteristic can be correlated with the observed characteristics. We derive moment conditions based on the assumption that firms choose product characteristics to maximize expected profits given their beliefs at that time about market conditions and that the "mistake" in the amount of the characteristic that is revealed once all products are on the market is conditionally mean independent of the firm's information set. Using the original BLP dataset we find that observed and unobserved product characteristics are highly positively correlated, biasing demand elasticities upward, as average estimated price elasticities double in absolute value and average markups fall by 50%.