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Instrument-free Identification and Estimation of Differentiated Products Models

David Byrne (), Susumu Imai (), Vasilis Sarafidis () and Masayuki Hirukawa
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Susumu Imai: Economics Discipline Group, University of Technology, Sydney
Masayuki Hirukawa: Department of Economics, Setsunan University

No 26, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: We propose a new methodology for estimating the demand and cost functions of differentiated products models when demand and cost data are available. The method deals with the endogeneity of prices to demand shocks and the endogeneity of outputs to cost shocks, but does not require instruments for identification. We establish non-parametric identification, consistency and asymptotic normality of our estimator. Using Monte-Carlo experiments, we show our method works well in contexts where instruments are correlated with demand and cost shocks, and where commonly-used instrumental variables estimators are biased and numerically unstable.

Keywords: Differentiated Goods Oligopoly; Instrument-free; Parametric Identification; Nonparametric Identification; Cost data (search for similar items in EconPapers)
JEL-codes: C13 C14 L13 L41 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2015-01-16
New Economics Papers: this item is included in nep-com and nep-ore
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Working Paper: Instrument-free Identifcation and Estimation of the Diferentiated Products Models (2015) Downloads
Working Paper: Instrument-free Identification And Estimation Of Differentiated Products Models (2015) Downloads
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