Identification and Estimation of Demand Models with Endogenous Product Entry and Exit

Victor Aguirregabiria (), Alessandro Iaria and Senay Sokullu

No 18398, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper deals with the endogeneity of firms’ entry and exit decisions in demand estimation. Product entry decisions lack a single crossing property in terms of demand unobservables, which causes the inconsistency of conventional methods dealing with selection. We present a novel and straightforward two-step approach to estimate demand while addressing endogenous product entry. In the first step, our method estimates a finite mixture model of product entry accommodating latent market types. In the second step, it estimates demand controlling for the propensity scores of all latent market types. We apply this approach to data from the airline industry.

JEL-codes: C14 C34 C35 C57 D22 L13 L93 (search for similar items in EconPapers)
Date: 2023-08
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Related works:
Working Paper: Identification and Estimation of Demand Models with Endogenous Product Entry and Exit (2026)
Working Paper: Identification and Estimation of Demand Models with Endogenous Product Entry and Exit (2023)
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