Estimation of random coefficients logit demand models with interactive fixed effects

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 fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodate endogeneity and, at the same time, capture 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 illustration to US automobile demand.

• Publication year

  2012

• Venue

  Journal of Econometrics

• Publication date

  2012-03-30

• Fields of study

  Computer Science, Economics

• Identifiers
  DOI 10.1920/WP.CEM.2017.1217
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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