Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/79529 
Year of Publication: 
2013
Series/Report no.: 
cemmap working paper No. CWP03/13
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
In this paper we introduce a new approach to estimating a differentiated product demand system that allows for error in market shares as measures of choice probabilities. In particular, our approach allows for products with zero sales in the data, which is a frequent phenomenon that arises in product differentiated markets but lies outside the scope of existing demand estimation techniques. Although we find that error in market shares generally undermine the standard point identification of discrete choice models of demand, we exploit shape restrictions on demand implied by discrete choice to generate a system of moment inequalities that partially identify demand parameters. These moment inequalities are fully robust to the variability in market shares yet are also adaptive to the information revealed by market shares in a way that allows for informative inferences. In addition, we construct a profiling approach for parameter inference with moment inequalities, making it feasible to study models with a large number of parameters (as typically required in demand applications) by focusing attention on a profile of the parameters, such as the price coefficient. We use our approach to study consumer demand from scanner data using the Dominick's Finer Foods database, and find that even for the baseline logit model, demand elasticities nearly double when the full error in market shares is taken into account.
Subjects: 
Demand Estimation
Differentiated Products
Profile
Measurement Error
Moment Inequality
JEL: 
C01
C12
L10
L81
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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