Working Paper: NBER ID: w16511
Authors: Aviv Nevo
Abstract: Models of consumer behavior play a key role in modern empirical Industrial Organization. In this paper, I survey some of the models used in this literature. In particular, I discuss two commonly used demand systems: multi-stage budgeting approaches and discrete choice models. I motivate their use and highlight some key modeling assumptions. I next briefly discuss key issues of estimation, and conclude by summarizing some extensions.
Keywords: industrial organization; demand estimation; differentiated products; almost ideal demand system; discrete choice
JEL Codes: C01; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer preferences (D11) | Demand for differentiated products (L15) |
| Heterogeneity of consumer preferences (D11) | Demand for differentiated products (L15) |
| Consumer characteristics (D12) | Demand (R22) |
| Consumer behavior modeling (D12) | Firm conduct (L10) |
| Estimating demand (J23) | Reverse engineering firm behavior (D22) |
| Understanding consumer demand (D12) | Measuring consumer welfare (D12) |
| Unobserved characteristics in models (C29) | Accurate demand estimates (E47) |
| Product differentiation (L15) | Consumer choice (D10) |
| Choice of model (C52) | Estimated elasticities of demand (D12) |
| Estimated elasticities of demand (D12) | Conclusions about consumer welfare and firm conduct (L13) |