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Endogenous Product Choice: A Progress Report

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  • Crawford, Gregory
Abstract
Empirical models of differentiated product demand are widely used by both academics and practitioners. While these methods treat carefully the potential endogeneity of price, until recently they have assumed the number and characteristics of the products offered by firms are exogenous. This paper presents a progress report on an ongoing research agenda to address this issue. First, it summarizes how the appropriate choice of 'orthogonal' instruments can yield consistent estimates of own and cross-price elasticities in the presence of endogenous product characteristics. Second, it summarizes how to measure 'quality markups' and the welfare consequences of endogenous product quality in U.S. cable television markets. Related papers and extensions to consider multiple product characteristics and dynamics are also discussed.

Suggested Citation

  • Crawford, Gregory, 2012. "Endogenous Product Choice: A Progress Report," CEPR Discussion Papers 8862, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8862
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    2. Ying Fan & Chenyu Yang, 2020. "Competition, Product Proliferation, and Welfare: A Study of the US Smartphone Market," American Economic Journal: Microeconomics, American Economic Association, vol. 12(2), pages 99-134, May.
    3. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    4. Kali P. Rath & Gongyun Zhao, 2021. "On the insufficiency of some conditions for minimal product differentiation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 53-65, April.
    5. Jiekai ZHANG, 2016. "The impact of advertising length caps on TV: Evidence from the French broadcast TV industry," Working Papers 16-06, NET Institute.
    6. Decarolis, Francesco & Guglielmo, Andrea, 2017. "Insurers’ response to selection risk: Evidence from Medicare enrollment reforms," Journal of Health Economics, Elsevier, vol. 56(C), pages 383-396.
    7. Craig Garthwaite & Christopher Ody & Amanda Starc, 2020. "Endogenous Quality Investments in the U.S. Hospital Market," NBER Working Papers 27440, National Bureau of Economic Research, Inc.
    8. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    9. Justin P. Johnson & Andrew Rhodes, 2021. "Multiproduct mergers and quality competition," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 633-661, September.
    10. Mitsukuni Nishida, 2015. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Marketing Science, INFORMS, vol. 34(1), pages 20-38, January.
    11. Garthwaite, Craig & Ody, Christopher & Starc, Amanda, 2022. "Endogenous quality investments in the U.S. hospital market," Journal of Health Economics, Elsevier, vol. 84(C).
    12. Jose A. Guajardo & Morris A. Cohen & Serguei Netessine, 2016. "Service Competition and Product Quality in the U.S. Automobile Industry," Management Science, INFORMS, vol. 62(7), pages 1860-1877, July.
    13. Gregory S. Crawford & Oleksandr Shcherbakov & Matthew Shum, 2015. "The welfare effects of endogenous quality choice in cable television markets," ECON - Working Papers 202, Department of Economics - University of Zurich.
    14. Hickman, William & Mortimer, Julie Holland, 2016. "Demand Estimation with Availability Variation," SocArXiv qe69j, Center for Open Science.
    15. David P. Byrne & Susumu Imai & Vasilis Sarafidis & Masayuki Hirukawa, 2015. "Instrument-free Identification and Estimation of Differentiated Products Models," Working Paper Series 26, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    16. Hongmin Li & Scott Webster & Gwangjae Yu, 2020. "Product Design Under Multinomial Logit Choices: Optimization of Quality and Prices in an Evolving Product Line," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 1011-1025, September.
    17. Crawford, Gregory & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare E ects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    18. Xuan Teng, 2022. "Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets," CESifo Working Paper Series 10042, CESifo.
    19. Griffith, Rachel & Crawford, Gregory & Iaria, Alessandro, 2016. "Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets," CEPR Discussion Papers 11675, C.E.P.R. Discussion Papers.
    20. Miravete, Eugenio & Moral, Maria & Thurk, Jeff, 2015. "Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles," CEPR Discussion Papers 10783, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Cable television; Endogenous product characteristics; Endogenous product choice; Endogenous quality; Orthogonal instruments; Welfare;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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