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Activity Number: 336
Type: Topic Contributed
Date/Time: Tuesday, August 6, 2013 : 10:30 AM to 12:20 PM
Sponsor: Section on Statistics in Marketing
Abstract - #308641
Title: Dealing with Endogeneity in Models of Discrete Choice Games
Author(s): Ayse Yesim Orhun*+
Companies: University of Michigan
Keywords: discrete choice games ; location ; endogeneity ; entry
Abstract:

I investigate the geographic location decisions of supermarkets to infer how they trade off proximity to favorable demand conditions with geographic differentiation. The model is based on a discrete-choice game between supermarkets, and incorporates firm uncertainty arising from firm- and location-level private information as well as researcher uncertainty arising from location-level common information. Thus the model addresses the concern that firms' actions may be based on factors that are unobservable to the researcher, thus correlated conditional on observables. The estimates reflect a significant level of common information. Importantly, I find that ignoring unobserved location heterogeneity results in biased estimates of both the competitive effects and the effects of location-specific observables on profits. Therefore, policy relevant counterfactuals based on changes in racial segregation are misleading if unobserved location heterogeneity is unaccounted for.


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