Estimating Strategic Complementarity in a State-Dependent Pricing Model

Marco Bonomo, Marcelo Medeiros () and Arnildo Correa

No 691, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: The predictions of a state-dependent pricing (SDP) model range from complete neutrality to results that are similar to those of a time-dependent approach. One way to generate relevant real effects is to incorporate strategic complementarities. This paper proposes a methodology to directly estimate the structural parameter related to strategic complementarity in pricing decisions in a SDP model. In addition, the method allows the estimation of some parameters of state-dependent pricing rules. The methodology uses the microfounded model to derive a structural, non-standard ordered probit. The identification strategy arises naturally from the parameter restrictions. We estimate the model using the microdata underlying the CPI-FGV in Brazil for the 1996-2006 period. The results indicate a substantial degree of strategic complementarity

Date: 2011
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Working Paper: Estimating Strategic Complementarity in a State-Dependent Pricing Model (2013)
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