Demand estimation with infrequent purchases and small market sizes

Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg and Kevin R. Williams

Quantitative Economics, 2023, vol. 14, issue 4, 1251-1294

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.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:wly:quante:v:14:y:2023:i:4:p:1251-1294

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