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Estimation of random coefficients logit demand models with interactive fixed effects

Authors: Hyungsik Roger Roger Moon , Matthew Shum and Martin Weidner
Date: 25 April 2014
Type: cemmap Working Paper, CWP20/14
DOI: 10.1920/wp.cem.2014.2014

Abstract

We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete choice demand model, which underlies much recent empirical work in IO. We add interactive fi xed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed eff ects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical application to US automobile demand. Download full version
New version:
Hyungsik Roger Moon, Matthew Shum and Martin Weidner February 2017, Estimation of random coefficients logit demand models with interactive fixed effects, cemmap Working Paper, CWP12/17, The IFS
Previous version:
Hyungsik Roger Roger Moon, Matthew Shum and Martin Weidner March 2012, Estimation of random coefficients logit demand models with interactive fixed effects, cemmap Working Paper, CWP08/12

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