Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares

Jean-Pierre Dubé (jdube@chicagobooth.edu), Ali Hortaçsu (hortacsu@uchicago.edu) and Joonhwi Joo (joonhwi.joo@utdallas.edu)
Additional contact information
Jean-Pierre Dubé: University of Chicago - Booth School of Business
Ali Hortaçsu: University of Chicago
Joonhwi Joo: University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

No 2020-13, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: Although typically overlooked, many purchase datasets exhibit a high incidence of products with zero sales. We propose a new estimator for the Random-Coefficients Logit demand system for purchase datasets with zero-valued market shares. The identification of the demand parameters is based on a pairwise-differencing approach that constructs moment conditions based on differences in demand between pairs of products. The corresponding estimator corrects non-parametrically for the potential selection of the incidence of zeros on unobserved aspects of demand. The estimator also corrects for the potential endogeneity of marketing variables both in demand and in the selection propensities. Monte Carlo simulations show that our proposed estimator provides reliable small-sample inference both with and without selection-on-unobservables. In an empirical case study, the proposed estimator not only generates different demand estimates than approaches that ignore selection in the incidence of zero shares, it also generates better out-of-sample fit of observed retail contribution margins.

Keywords: consumer demand; pairwise-difference estimation; endogeneity; consideration (search for similar items in EconPapers)
JEL-codes: C1 C5 C6 D11 L00 M3 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020
New Economics Papers: this item is included in nep-dcm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_202013.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfi:wpaper:2020-13

Access Statistics for this paper

More papers in Working Papers from Becker Friedman Institute for Research In Economics Contact information at EDIRC.
Bibliographic data for series maintained by Toni Shears (bfi@uchicago.edu this e-mail address is bad, please contact repec@repec.org).