Estimation of random coefficients logit demand models with interactive fixed effects

Hyungsik Roger Moon, Matthew Shum, Martin Weidner

Research output: Contribution to journalArticle

2 Citations (Scopus)

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 accommodate endogeneity and, at the same time, capture 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.

Original languageEnglish
Pages (from-to)613-644
Number of pages32
JournalJournal of Econometrics
Volume206
Issue number2
DOIs
Publication statusPublished - 2018 Oct

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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