Author Abstract
We consider the identification and estimation of demand systems in models of imperfect competition. Under standard assumptions about demand and supply, the bias that arises from price endogeneity can be resolved without the use of instruments. We provide a constructive identification result where the causal price parameter can be expressed as a function of the covariance of unobserved shocks. The function is estimated efficiently by the output of ordinary least squares regression. Thus, with a covariance restriction on unobservable shocks, structural parameters can be point identified. Further, it can be possible to place bounds on the structural parameters without imposing a covariance restriction. We illustrate the methodology with applications to ready-to-eat cereal, cement, and airlines.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: October 2018
- HBS Working Paper Number: HBS Working Paper #19-051
- Faculty Unit(s): Strategy