Asymptotic theory for differentiated products demand models with many markets

Joachim Freyberger

Journal of Econometrics, 2015, vol. 185, issue 1, 162-181

Abstract: This paper develops asymptotic theory for differentiated product demand models with a large number of markets T. It takes into account that the predicted market shares are approximated by Monte Carlo integration with R draws and that the observed market shares are approximated from a sample of N consumers. The estimated parameters are T consistent and asymptotically normal as long as R and N grow fast enough relative to T. Both approximations yield additional bias and variance terms in the asymptotic expansion. I propose a bias corrected estimator and a variance adjustment that takes the leading terms into account. Monte Carlo simulations show that these adjustments should be used in applications to avoid severe undercoverage caused by the approximation errors.

Keywords: Demand estimation; Differentiated products; Many markets; Bias correction; Adjusted standard errors (search for similar items in EconPapers)
JEL-codes: C13 C15 L13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:185:y:2015:i:1:p:162-181

DOI: 10.1016/j.jeconom.2014.10.009

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