Econometrica: Jul, 1995, Volume 63, Issue 4
Automobile Prices in Market Equilibrium
Ariel Pakes, James Levinsohn, Steven Berry
This paper develops techniques for empirically analyzing demand and supply in differentiated products markets and then applies these techniques to analyze equilibrium in the U.S. automobile industry. Our primary goal is to present a framework which enables one to obtain estimates of demand and cost parameters for a class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. When we apply the techniques developed here to the U.S. automobile market, we obtain cost and demand parameters for (essentially) all models marketed over a twenty year period.