Working Paper: NBER ID: w21500
Authors: Steven T. Berry; Philip Haile
Abstract: Empirical models of demand for–and, often, supply of–differentiated products are widely used in practice, typically employing parametric functional forms and distributions of consumer heterogeneity. We review some recent work studying identification in a broad class of such models. This work shows that parametric functional forms and distributional assumptions are not essential for identification. Rather, identification relies primarily on the standard requirement that instruments be available for the endogenous variables–here, typically, prices and quantities. We discuss the kinds of instruments needed for identification and how the reliance on instruments can be reduced by nonparametric functional form restrictions or better data. We also discuss results on discrimination between alternative models of oligopoly competition.
Keywords: differentiated products; identification; demand models; supply models; instrumental variables
JEL Codes: C3; C35; C36; C52; C57; D12; D22; D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| availability of suitable instruments (C36) | identification of demand (R22) |
| exogenous variation in prices and quantities (E39) | identification of demand (R22) |
| micro-level data (C81) | reduction in need for market share instruments (G10) |
| instruments for endogenous variables (C36) | identification without strong parametric assumptions (C51) |
| instruments (C26) | reliable identification outcomes (C52) |