Instrument-free Identification And Estimation Of Differentiated Products Models

QED Working Paper Number
1336

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.

Author(s)

David Byrne
Masayuki Hirukawa
Susumu Imai
Vasilis Sarafidis

JEL Codes

Keywords

Instrument-free
Differentiated goods oligopoly
BLP
parametric identification
nonparametric identification
sieve

Working Paper

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