# Maximum Likelihood Estimation of Differentiated Products Demand Systems

@inproceedings{Lewis2021MaximumLE, title={Maximum Likelihood Estimation of Differentiated Products Demand Systems}, author={Greg Lewis and Bora Ozaltun and Georgios Zervas}, year={2021} }

We discuss estimation of the differentiated products demand system of Berry et al. (1995) (BLP) by maximum likelihood estimation (MLE). We derive the maximum likelihood estimator in the case where prices are endogenously generated by firms that set prices in Bertrand-Nash equilibrium. In Monte Carlo simulations the MLE estimator outperforms the best-practice GMM estimator on both bias and mean squared error when the model is correctly specified. This remains true under some forms of…

## Figures and Tables from this paper

## References

SHOWING 1-10 OF 22 REFERENCES

The Empirical Likelihood MPEC Approach to Demand Estimation

- Economics, Mathematics
- 2013

The family of Generalized Empirical Likelihood (GEL) estimators provide a number of potential advantages relative to Generalized Method of Moments (GMM) estimators. While it is well known these…

Large Market Asymptotics for Differentiated Product Demand Estimators With Economic Models of Supply

- Economics
- 2016

IO economists often estimate demand for differentiated products using data sets with a small number of large markets. This paper addresses the question of consistency and asymptotic distributions of…

Best practices for differentiated products demand estimation with PyBLP

- Economics
- 2020

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,…

Simulated Maximum Likelihood Estimator for the Random Coefficient Logit Model Using Aggregate Data

- Economics, Mathematics
- 2008

The authors propose a simulated maximum likelihood estimation method for the random coefficient logit model using aggregate data, accounting for heterogeneity and endogeneity. The method allows for…

Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

- Economics, Mathematics
- 2019

We consider the identification of empirical models of supply and demand. As is well known, a supply-side instrument can resolve price endogeneity in demand estimation. We show that, under common…

Estimating Discrete-Choice Models of Product Differentiation

- Economics
- 1994

This article considers the problem of "supply-and-demand" analysis on a cross section of oligopoly markets with differentiated products. The primary methodology is to assume that demand can be…

Improving the Performance of Random Coefficients Demand Models: The Role of Optimal Instruments

- Economics
- 2012

Automobile Prices in Market Equilibrium

- Economics
- 1995

This paper develops techniques for empirically analyzing demand and supply in differentiated product markets and then applies these techniques to the U.S. automobile industry. The authors' framework…

Measuring Substitution Patterns in Differentiated-Products Industries

- Economics
- 2019

We study the estimation of substitution patterns within the discrete choice framework developed by Berry (1994) and Berry, Levinsohn, and Pakes (1995). Our objective is to demonstrate the…