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Estimation of Random Coefficients Logit Demand Models with Interactive Fixed Effects

Moon, Hyungsik Roger and Shum, Matthew and Weidner, Martin (2010) Estimation of Random Coefficients Logit Demand Models with Interactive Fixed Effects. Social Science Working Paper, 1325. California Institute of Technology , Pasadena, CA. (Unpublished)

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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 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.

Item Type:Report or Paper (Working Paper)
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URLURL TypeDescription ItemPublished Version
Shum, Matthew0000-0002-6262-915X
Additional Information:We are grateful for comments from the participants of the 2009 All-UC Econometrics Conference and of the econometrics seminar at Georgetown University. We also thank Han Hong, Sung Jae Jun and Jinyong Hahn for very helpful discussions. Moon acknowledges the NSF for financial support via SES 0920903.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:discrete-choice demand model, interactive fixed effects, factor analysis, panel data, random utility model
Series Name:Social Science Working Paper
Issue or Number:1325
Classification Code:JEL: C23, C25
Record Number:CaltechAUTHORS:20170726-151203719
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79445
Deposited By: Jacquelyn Bussone
Deposited On:07 Aug 2017 22:01
Last Modified:25 Oct 2019 16:28

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