Identification and Instruments Sample Clauses

Identification and Instruments. Mean parameters of the utility function are identified following conventional arguments (e.g. Xxxxx et al. 1995). In the current setting, market shares of items change as a result of differences in product characteristics and the set of available products. Note that the set of available prod- ucts could change as result of product line consolidations by the manufacturer post bankruptcy, naturally evolving new product introduction and dealer network pruning. In an extreme case some brands of the distressed firm may no longer be available to consumers in a market which experiences dealer network pruning relative to another market which does not see any dealer network pruning. In our setting these factors coupled with reduction in the choice set of dealers 11This assumption departs from Xxxxxx (2009) who formally models the product-specific price and quality evo- lution as a first-order vector autoregressive system and jointly estimates the consumer demand and supply side models. help identify α. The parameters of the consumer heterogeneity are identified by the set of products from which there is spillover demand due to substitution. Higher demand due to substitution from products with similar product characteristics implies larger taste heterogeneity. On the other hand, if a product draws proportionally from all products, then one concludes that consumers have very homogenous tastes. Furthermore, in contrast to static models of demand (e.g. Xxxxx et al. 1995), my model uses inter-temporal substitution patterns as an additional source of identification for the parameters of consumer heterogeneity. For instance, if a price reduction for a product results in lower market shares for similar products in the subsequent period, the heterogeneity parameter will be identified as being large. Following previous studies in demand estimation, I assume that the observed product char- acteristics are determined as part of a technological innovation process, which is exogenous to the evolution of unobserved product characteristics. Since price is possibly chosen by the firms after observing the unobserved (to the econometrician) product characteristics, price can be potentially endogenous. Previous studies such as Xxxxx et al. (1995) and Xxxxxxxxxxxxx and Xxxxxx (2009) use variables that affect the price-cost margin, including all of the product characteristics, the mean product characteristics for a given firm, the mean product character- istics for all firms, and the co...