Semiparametric estimation of CES demand system with observed and unobserved product characteristics

Joonhwi Joo and Ali Hortacsu
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Joonhwi Joo: University of Chicago

No 36, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a demand estimation framework with observed and unobserved product char- acteristics based on CES preferences. We show that our demand system can nest the logit demand system with observed and unobserved product characteristics, which has been widely used since Berry (1994); Berry et al. (1995). Furthermore, the demand system we develop can directly accommodate zero market shares by separating the extensive and the intensive margins. We apply our framework to the scanner data of cola sales, which shows that the estimated demand curves can even be upward sloping if zero market shares are not properly accommodated.

Date: 2016
New Economics Papers: this item is included in nep-com, nep-ecm and nep-ger
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:36

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