Working Paper: NBER ID: w29530
Authors: Ali Hortasu; Olivia R. Natan; Hayden Parsley; Timothy Schwieg; Kevin R. Williams
Abstract: We propose a demand estimation method that allows for a large number of zero sale observations, rich unobserved heterogeneity, and endogenous prices. We do so by modeling small market sizes through Poisson arrivals. Each of these arriving consumers solves a standard discrete choice problem. We present a Bayesian IV estimation approach that addresses sampling error in product shares and scales well to rich data environments. The data requirements are traditional market-level data as well as a measure of market sizes or consumer arrivals. After presenting simulation studies, we demonstrate the method in an empirical application of air travel demand.
Keywords: No keywords provided
JEL Codes: C10; C11; C13; C18; L93
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proposed demand estimation method (C51) | Unbiased demand estimates (C51) |
| Proposed demand estimation method (C51) | Accurate and precise parameter values (C51) |
| Proposed demand estimation method (C51) | Price elasticity estimates (D12) |
| Existing demand estimation approaches (R22) | Biased price elasticity estimates (C51) |
| Proposed demand estimation method (C51) | Improved performance in simulation studies (C15) |