Empirical Models of Demand and Supply in Differentiated Products Industries

Amit Gandhi and Aviv Nevo

No 29257, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We present empirical models of demand and supply in differentiated products industries with an emphasis on the key ideas arising from the recent applied literature. We start with a discussion of the challenges in modeling and estimation of demand for differentiated products, and focus on discrete choice characteristics-based demand models that address these challenges while allowing enough flexibility to capture realistic substitution patterns. Our discussion emphasizes how empirical strategies can leverage different features of data depending on the sources of variation that are commonly found in applied work. Moving to the supply-side, we show how demand estimates combined with a pricing model, can be used to recover markups and marginal costs. We also show how the model of pricing can be tested. We discuss a baseline Bertrand-Nash model of competitive pricing, and expand it to cover a) coordinated pricing, b) wholesale relationships, and c) bargaining. We end the chapter with extensions of the demand model, including dynamic and continuous demand.

JEL-codes: C01 D12 D22 D43 L13 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-com, nep-dcm, nep-ind, nep-isf, nep-ore and nep-reg
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Citations: View citations in EconPapers (9)

Published as Amit Gandhi, Aviv Nevo, Chapter 2 - Empirical models of demand and supply in differentiated products industries☆☆We thank Pierre Dubois, Phil Haile, Ali Hortaçsu, Felipe Kup Barbieri de Matos, Jing Tao and three referees for helpful comments and insightful suggestions., Editor(s): Kate Ho, Ali Hortaçsu, Alessandro Lizzeri, Handbook of Industrial Organization, Elsevier, Volume 4, Issue 1, 2021, Pages 63-139

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