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Title:Estimation of random coefficients logit demand models with interactive fixed effects PDF Logo
Authors:Moon, Hyungsik Roger
Shum, Matthew
Weidner, Martin
Issue Date:2012
Series/Report no.:cemmap working paper CWP08/12
Abstract:We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discretechoice 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 application to US automobile demand.
Subjects:discrete-choice demand model
interactive fixed effects
factor analysis
panel data
random utility model
JEL:C23
C25
Persistent Identifier of the first edition:doi:10.1920/wp.cem.2012.0812
Document Type:Working Paper
Appears in Collections:cemmap working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies (IFS)

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