Identification in Differentiated Products Markets

Posted: 18 Nov 2016

See all articles by Steven Berry

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Philip A. Haile

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

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Date Written: October 2016

Abstract

Empirical models of differentiated products demand (and often supply) are widely used in industrial organization and other fields of economics. We review some recent work studying identification in a broad class of such models. This work shows that the parametric functional forms and distributional assumptions commonly used for estimation are not essential for identification. Rather, identification relies primarily on the standard requirement that instruments be available for the endogenous variables — here, typically, prices and quantities. We discuss the types of instruments that can suffice, as well as how instrumental variables requirements can be relaxed by the availability of individual-level data or through restrictions on preferences. We also review new results on discrimination between alternative models of oligopoly competition. Together, these results reveal a strong nonparametric foundation for a broad applied literature, provide practical guidance for applied work, and may suggest new approaches to estimation and testing.

Suggested Citation

Berry, Steven T. and Haile, Philip A., Identification in Differentiated Products Markets (October 2016). Annual Review of Economics, Vol. 8, pp. 27-52, 2016, Available at SSRN: https://ssrn.com/abstract=2870842 or http://dx.doi.org/10.1146/annurev-economics-080315-015050

Steven T. Berry (Contact Author)

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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New Haven, CT 06520-8281
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Philip A. Haile

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8264
United States
203-432-3568 (Phone)
203-432-6323 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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