Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach

50 Pages Posted: 2 Aug 2012  

C. Lanier Benkard

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Patrick Bajari

University of Michigan at Ann Arbor - Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: February 2004

Abstract

We study the identification and estimation of Gorman-Lancaster style hedonic models of demand for differentiated products for the case when one product characteristic is not observed. Our identification and estimation strategy is a two-step approach in the spirit of Rosen (1974). Relative to Rosen's approach, we generalize the first stage estimation to allow for a single dimensional unobserved product characteristic, and also allow the hedonic pricing function to have a general, non-additive structure. In the second stage, if the product space is continuous and the functional form of utility is known then there exists an inversion between the consumer's choices and her preference parameters. This inversion can be used to recover the distribution of random coefficients nonparametrically. For the more common case when the set of products is finite, we use the revealed preference conditions from the hedonic model to develop a Gibbs sampling estimator for the distribution of random coefficients. We apply our methods to estimating personal computer demand.

Suggested Citation

Benkard, C. Lanier and Bajari, Patrick, Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach (February 2004). NBER Working Paper No. w10278. Available at SSRN: https://ssrn.com/abstract=2122244

C. Lanier Benkard (Contact Author)

Stanford Graduate School of Business ( email )

Stanford, CA 94305-5015
United States
650-723-4124 (Phone)
650-725-0468 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Patrick Bajari

University of Michigan at Ann Arbor - Economics ( email )

266 Lorch Hall
Ann Arbor, MI 48109
United States
734-763-5319 (Phone)

HOME PAGE: http://www-personal.umich.edu/~bajari/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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