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Published December 2008 | public
Journal Article

Demand and supply estimation biases due to omission of durability

Abstract

We build a dynamic equilibrium model of a durable goods oligopoly with a competitive secondary market to evaluate the bias in estimating the structural parameters of demand and supply when durability is omitted. We simulate data from our dynamic model and use them to estimate the model's static counterpart. We find that the static estimate of the elasticity of demand is an overestimate of the true elasticity and that the static estimate of the markup is an underestimate. Our results provide a benchmark on the magnitude and sign of the bias when static models are used for economic inference.

Additional Information

© 2008 Elsevier B.V. All rights reserved.Available online 18 September 2008.

Additional details

Created:
August 22, 2023
Modified:
October 17, 2023