Work

Estimation of random coefficients logit demand models with interactive fixed effects

Year: 2017

Type: report

Abstract: We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete-choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two-step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical illustration to US automobile demand.

DOI: 10.1920/wp.cem.2017.1217

Authors: Hyungsik Roger Moon, Matthew Shum, Martin Weidner

Institutions: University of Southern California, Yonsei University, California Institute of Technology, University College London

Language: English

Topic: Consumer Market Behavior and Pricing

Subfield: Marketing

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: gold

Funders: National Science Foundation, Economic and Social Research Council

Awards: Asymptotic Analysis of Panel Regression Models with Unobserved Interactive Individual Effects, G6556031174

OpenAlex ID: W1523644048

Cites: 48

Cited by: 27

Related to: 10