Demand Estimation with Infrequent Purchases and Small Market Sizes

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

No 29530, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C10 C11 C13 C18 L93 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-com and nep-dcm
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