No abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley-Blackwell and The RAND Corporation are collaborating with JSTOR to digitize, preserve and extend access to The RAND Journal of Economics. 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 described by a discrete-choice model and that prices are endogenously determined by price-setting firms. In contrast to some previous empirical work, the techniques explicitly allow for the possibility that prices are correlated with unobserved demand factors in the cross section of markets. The article proposes estimation by "inverting" the marketshare equation to find the implied mean levels of utility for each good. This method allows for estimation by traditional instrumental variables techniques. * Traditional "supply-and-demand" analysis has long been a staple of empirical economics. This analysis attempts to uncover cost and demand information from market data under the assumption of a static, perfectly competitive equilibrium. In recent years, increasing attention has been paid to estimating demand and cost parameters under imperfect competition. Much, though not all, of this existing literature on estimation under imperfect competition is tied to homogeneous goods markets.This article considers the problem of estimating supply-and-demand models in markets with product differentiation. In common with some previous articles, market demand is derived from a general class of discrete-choice models of consumer behavior. The utility of consumers depends on product characteristics and individual taste parameters; productlevel market shares are then derived as the aggregate outcome of consumer decisions. Firms are modelled as price-setting oligopolists, and endogenous market outcomes are derived from an assumption of Nash equilibrium in prices.The proposed estimation methods do not require the econometrician to observe all relevant product characteristics. The presence of unobserved product characteristics allows for a product-level source of sampling error. More importantly, it reintroduces the econometric problem of endogenous prices (or "simultaneity") that is familiar from studies of homogeneous goods markets. In these studies, the "error" in the demand equation is usually * Yale University. I would like to thank Ariel Pakes, James Levinsohn, Alvin Klevorick, Richard Levin, Robert Porter, and Michael Whinston for helpful discussions and/or comments on earlier drafts. Referees and a Coeditor of this Journal made invaluable suggestions. Johan Gauderis provided excellent programming assistance. This work was partially supported by NSF grant no. S...

This paper considers the effect of an airline's scale of operation at an airport on the profitability of routes flown out of that airport. The empirical methodology uses the entry decisions of airlines as indicators of underlying profitability; the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability. The literature on empirical models of oligopoly entry is also extended, particularly via a focus on the important (and difficult) role of differences between firms.

In this paper, we consider how rich sources of information on consumer choice can help to identify demand parameters in a widely used class of differentiated products demand models. Most important, we show how to use "second-choice" data on automotive purchases to obtain good estimates of substitution patterns in the automobile industry. We use our estimates to make out-of-sample predictions about important recent changes in industry structure.We thank numerous seminar participants, two referees, and the editors Lars Hansen and John Cochrane for helpful suggestions. We also thank the National Science Foundation for financial support, through grants 9122672, 9512106, and 9617887. We are particularly grateful to G.