Estimating Discrete-Choice Models of Product Differentiation

This article considers the problem of "supply-and-demand" analysis on a cross section of oligopoly markets with differentiated products. The primary methodology is to assume that demand can be described by a discrete-choice model and that prices are endogenously determined by price-setting...

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Bibliographic Details
Published in:The Rand journal of economics 1994-07, Vol.25 (2), p.242-262
Main Author: Berry, Steven T.
Format: Article
Language:English
Subjects:
Coefficients
Consumer economics
Consumer tastes
Decision models
Demand analysis
Economic models
Estimating techniques
Estimation methods
Instrumental variables
Instrumental variables estimation
Market demand
Market prices
Market share
Oligopoly
Pricing
Product differentiation
Studies
Supply & demand
Supply and demand
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Summary:This article considers the problem of "supply-and-demand" analysis on a cross section of oligopoly markets with differentiated products. The primary methodology is to assume that demand can be described by a discrete-choice model and that prices are endogenously determined by price-setting firms. In contrast to some previous empirical work, the techniques explicitly allow for the possibility that prices are correlated with unobserved demand factors in the cross section of markets. The article proposes estimation by "inverting" the market-share equation to find the implied mean levels of utility for each good. This method allows for estimation by traditional instrumental variables techniques.
ISSN:0741-6261
1756-2171
DOI:10.2307/2555829