Best practices for differentiated products demand estimation with PyBLP

Differentiated products demand systems are a workhorse for understanding the price effects of mergers, the value of new goods, and the contribution of products to seller networks. Berry, Levinsohn, and Fakes (1995) provide a flexible random coefficients logit model which accounts for the endogeneity...

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Veröffentlicht in:The Rand journal of economics 2020-12, Vol.51 (4), p.1108-1161
Hauptverfasser: Conlon, Christopher, Gortmaker, Jeff
Format: Artikel
Sprache:eng
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Zusammenfassung:Differentiated products demand systems are a workhorse for understanding the price effects of mergers, the value of new goods, and the contribution of products to seller networks. Berry, Levinsohn, and Fakes (1995) provide a flexible random coefficients logit model which accounts for the endogeneity of prices. This article reviews and combines several recent advances related to the estimation of BLP-type problems and implements an extensible generic interface via the PyBLP package. Monte Carlo experiments and replications suggest different conclusions than the prior literature: multiple local optima appear to be rare in well-identified problems; good performance is possible even in small samples, particularly when "optimal instruments" are employed along with supply-side restrictions. If Python is installed on your computer, PyBLP can be installed with the following command: pip install pyblp. Up-to-date documentation for the package is available at https://pyblp.readthedocs.io.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12352