Journal
JOURNAL OF MARKETING RESEARCH
Volume 47, Issue 1, Pages 3-13Publisher
SAGE PUBLICATIONS INC
DOI: 10.1509/jmkr.47.1.3
Keywords
customer choice; endogeneity; advertising; price effects; econometric models
Categories
Ask authors/readers for more resources
Endogeneity arises for numerous reasons in models of consumer choice. It leads to inconsistency with standard estimation methods that maintain independence between the model's error and the included variables. The authors describe a control function approach for handling endogeneity in choice models. Observed variables and economic theory are used to derive controls for the dependence between the endogenous variable and the demand error. The theory points to the relationships that contain information on the unobserved demand factor, such as the pricing equation and the advertising equation. The authors' approach is an alternative to Berry, Levinsohn, and Pakes's (1995) product-market controls for unobserved quality. The authors apply both methods to examine households' choices among television options, including basic and premium cable packages, in which unobserved attributes, such as quality of programming, are expected to be correlated with price. Without correcting for endogeneity, aggregate demand is estimated to be upward-sloping, suggesting that omitted attributes are positively correlated with demand. Both the control function method and the product-market controls method produce downward-sloping demand estimates that are similar.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available