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Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market

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2004

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University of Chicago Press
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Berry, Steven, James Levinsohn, and Ariel Pakes. 2004. Differentiated products demand systems from a combination of micro and macro data: The new car market. Journal of Political Economy 112(1): 68-105.

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In this paper, we consider how rich sources of information on consumer choice can help to identify demand parameters in a widely used class of differentiated products demand models. Most important, we show how to use “second‐choice” data on automotive purchases to obtain good estimates of substitution patterns in the automobile industry. We use our estimates to make out‐of‐sample predictions about important recent changes in industry structure.

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