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Demand and supply estimation biases due to omission of durability

Chen, Jiawei and Esteban, Susanna and Shum, Matthew (2008) Demand and supply estimation biases due to omission of durability. Journal of Econometrics, 147 (2). pp. 247-257. ISSN 0304-4076. doi:10.1016/j.jeconom.2008.09.014.

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We build a dynamic equilibrium model of a durable goods oligopoly with a competitive secondary market to evaluate the bias in estimating the structural parameters of demand and supply when durability is omitted. We simulate data from our dynamic model and use them to estimate the model’s static counterpart. We find that the static estimate of the elasticity of demand is an overestimate of the true elasticity and that the static estimate of the markup is an underestimate. Our results provide a benchmark on the magnitude and sign of the bias when static models are used for economic inference.

Item Type:Article
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Shum, Matthew0000-0002-6262-915X
Additional Information:© 2008 Elsevier B.V. All rights reserved.Available online 18 September 2008.
Subject Keywords:Durable goods; Secondary markets; Estimation bias; Demand elasticity; Mark-up
Issue or Number:2
Record Number:CaltechAUTHORS:CHEje08
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:13428
Deposited By: Lindsay Cleary
Deposited On:17 Apr 2009 18:09
Last Modified:08 Nov 2021 22:37

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