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Demand and supply estimation biases due to omission of durability

Jiawei Chen, Susanna Esteban () and Matthew Shum ()

Journal of Econometrics, 2008, vol. 147, issue 2, 247-257

Abstract: We build a dynamic equilibrium model of a durable goods oligopoly with a competitive secondary market to evaluate the bias in estimating the structural parameters of demand and supply when durability is omitted. We simulate data from our dynamic model and use them to estimate the model's static counterpart. We find that the static estimate of the elasticity of demand is an overestimate of the true elasticity and that the static estimate of the markup is an underestimate. Our results provide a benchmark on the magnitude and sign of the bias when static models are used for economic inference.

Keywords: Durable; goods; Secondary; markets; Estimation; bias; Demand; elasticity; Mark-up (search for similar items in EconPapers)
Date: 2008
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:147:y:2008:i:2:p:247-257