Identification in Differentiated Products Markets
Empirical models of demand for — and, often, supply of — diﬀerentiated products are widely used in practice, typically employing parametric functional forms and distributions of consumer heterogeneity. We review some recent work studying identiﬁcation in a broad class of such models. This work shows that parametric functional forms and distributional assumptions are not essential for identiﬁcation. Rather, identiﬁcation relies primarily on the standard requirement that instruments be available for the endogenous variables — here, typically, prices and quantities. We discuss the kinds of instruments needed for identiﬁcation and how the reliance on instruments can be reduced by nonparametric functional form restrictions or better data. We also discuss results on discrimination between alternative models of oligopoly competition.
Berry, Steven T. and Haile, Philip A., "Identification in Differentiated Products Markets" (2015). Cowles Foundation Discussion Papers. 2460.