Document Type

Discussion Paper

Publication Date

3-2023

CFDP Revision Date

2313R1

CFDP Update Date

03/01/2023

CFDP Pages

59

Journal of Economic Literature (JEL) Code(s)

C10, C11, C13, C18, L93

Abstract

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 con-sumers solves a standard discrete choice problem. We present a Bayesian IV estima-tion 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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