Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: Nov, 2023, Volume 14, Issue 4

Demand Estimation with Infrequent Purchases and Small Market Sizes

https://doi.org/10.3982/QE2147
p. 1251-1294

Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams

We propose a demand estimation method that allows for a large number of zero‐ sale observations, rich unobserved heterogeneity, and endogenous prices. We do so by modeling small market sizes through Poisson arrivals. Each of these arriving consumers solves a standard discrete choice problem. We present a Bayesian IV estimation approach that addresses sampling error in product shares and scales well to rich data environments. The data requirements are traditional market‐level data as well as a measure of market sizes or consumer arrivals. After presenting simulation studies, we demonstrate the method in an empirical application of air travel demand.


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Supplemental Material

Supplement to "Demand Estimation with Infrequent Purchases and Small Market Sizes"

Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, and Kevin R. Williams

This zip file contains the replication files for the manuscript.