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| Author: | Huang, D. Rojas, C. Bass, F. |
| Title: | What happens when demand is estimated with a misspecified model? |
| Journal: | Journal of Industrial Economics
2008 : DEC, VOL. 56:4, p. 809-839 |
| Index terms: | demand estimation models |
| Language: | eng |
| Abstract: | This study conducts Monte Carlo experiments to examine the biases of assuming a misspecified demand model. Studied are continuous models (linear, log-linear and AIDS), and discrete choice models (logit) in the context of differentiated products and aggregate data. Estimating of demand with the 'wrong' model produces varying degrees of bias in estimated elasticities, but the logit model can yield unbiased estimates for a certain size of the assumed market potential. Merger simulations confirm the key importance of market potential in logit estimation, suggesting that a discrete choice model may be preferable. |
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