Working Paper: NBER ID: w29305
Authors: Steven T. Berry; Philip A. Haile
Abstract: Demand elasticities and other features of demand are critical determinants of the answers to most positive and normative questions about market power or the functioning of markets in practice. As a result, reliable demand estimation is an essential input to many types of research in Industrial Organization and other fields of economics. This chapter presents a discussion of some foundational issues in demand estimation. We focus on the distinctive challenges of demand estimation and strategies one can use to overcome them. We cover core models, alternative data settings, common estimation approaches, the role and choice of instruments, and nonparametric identification.
Keywords: No keywords provided
JEL Codes: C36; D12; L20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand elasticities (D12) | measuring markups (D43) |
| demand elasticities (D12) | quantifying market power (D42) |
| demand elasticities (D12) | understanding market outcomes (D43) |
| multiple latent demand shocks (J23) | complicating estimation process (C51) |
| traditional regression analysis (C29) | insufficient for demand estimation (C51) |
| endogeneity of prices (E30) | challenges in identifying demand (R22) |
| unobserved demand shocks (E39) | challenges in identifying demand (R22) |
| valid instruments (C36) | overcoming endogeneity challenges (C51) |