Measuring Substitution Patterns in Differentiated Products Industries

56 Pages Posted: 21 Oct 2019

See all articles by Amit Gandhi

Amit Gandhi

University of Wisconsin - Madison

Jean-Francois Houde

University of Wisconsin - Madison - Department of Economics

Date Written: October 2019

Abstract

We study the estimation of substitution patterns within the discrete choice framework developed by Berry (1994) and Berry, Levinsohn, and Pakes (1995). Our objective, is to illustrate the consequences of using weak instruments in this non-linear GMM context, and propose a new class of instruments that can be used to estimate a large family of models with aggregate data. We argue that relevant instruments should reflect the (exogenous) degree of differentiation of each product in a market (Differentiation IVs), and provide a series of examples to illustrate the performance of simple instrument functions.

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Suggested Citation

Gandhi, Amit and Houde, Jean-Francois, Measuring Substitution Patterns in Differentiated Products Industries (October 2019). NBER Working Paper No. w26375. Available at SSRN: https://ssrn.com/abstract=3472810

Amit Gandhi (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Jean-Francois Houde

University of Wisconsin - Madison - Department of Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

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