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Estimation of random coefficients logit demand models with interactive fixed effects

Moon, Hyungsik Roger and Shum, Matthew and Weidner, Martin (2018) Estimation of random coefficients logit demand models with interactive fixed effects. Journal of Econometrics, 206 (2). pp. 613-644. ISSN 0304-4076. doi:10.1016/j.jeconom.2018.06.016.

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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 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.

Item Type:Article
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URLURL TypeDescription ItemWorking Paper
Shum, Matthew0000-0002-6262-915X
Additional Information:© 2018 The Author(s). Published by Elsevier B.V. Under a Creative Commons license Attribution 4.0 International (CC BY 4.0) Available online 11 July 2018. Open Access funded by Economic and Social Research Council. We thank participants in presentations at Georgetown, Johns Hopkins, Ohio State, Penn State, Rice, Texas A&M, UC Davis, UC Irvine, UCLA, Chicago Booth, Michigan, UPenn, Wisconsin, Southampton, the 2009 California Econometrics Conference and the 2010 Econometric Society World Congress for helpful comments. Chris Hansen, Han Hong, Sung Jae Jun, Jinyong Hahn, and Rosa Matzkin provided very helpful discussions. Moon acknowledges the NSF for financial support via SES 0920903. Weidner acknowledges support from the Economic and Social Research Council through the ESRC Centre for Microdata Methods and Practice grant RES-589-28-0001, and from the European Research Council grant ERC-2014-CoG-646917-ROMIA.
Funding AgencyGrant Number
Economic and Social Research Council (ESRC)RES-589-28-0001
European Research Council (ERC)646917-ROMIA
Subject Keywords:Discrete-choice demand model; Interactive fixed effects; Factor analysis; Panel data; Random utility model
Issue or Number:2
Classification Code:JEL classification: C23; C25
Record Number:CaltechAUTHORS:20180711-164058630
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Official Citation:Hyungsik Roger Moon, Matthew Shum, Martin Weidner, Estimation of random coefficients logit demand models with interactive fixed effects, Journal of Econometrics, Volume 206, Issue 2, 2018, Pages 613-644, ISSN 0304-4076, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:87787
Deposited By: George Porter
Deposited On:12 Jul 2018 14:41
Last Modified:15 Nov 2021 20:51

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