TY  - JOUR
AU  - Ackerberg,Daniel A.
AU  - Rysman,Marc
TI  - Unobserved Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8798
PY  - 2002
Y2  - February 2002
UR  - http://www.nber.org/papers/w8798
L1  - http://www.nber.org/papers/w8798.pdf
N1  - Author contact info:
Daniel Ackerberg
Department of Economics
University of Michigan
Lorch Hall
Ann Arbor, MI 48109
E-Mail: daniel.ackerberg@gmail.com

Marc Rysman
Department of Economics
Boston University
270 Bay State Road
Boston, MA 02215
Tel: 617-353-3086
Fax: 617-353-4449
E-Mail: mrysman@bu.edu
AB  - Standard discrete choice models such as logit, nested logit, and random coefficients models place very strong restrictions on how unobservable product space increases with the number of products. We argue (and show with Monte Carlo experiments) that these restrictions can lead to biased conclusions regarding price elasticities and welfare consequences from additional products. In addition, these restrictions can identify parameters which are not intuitively identified given the data at hand. We suggest two alternative models that relax these restrictions, both motivated by structural interpretations. Monte-Carlo experiments and an application to data show that these alternative models perform well in practice.
ER  -