Demand and Supply Estimation Biases Due to Omission of Durability Articles uri icon

authors

  • CHEN, JIAWEI
  • ESTEBAN TAVERA, SUSANA
  • Shum, Matthew

publication date

  • December 2008

start page

  • 247

end page

  • 257

issue

  • 2

volume

  • 147

International Standard Serial Number (ISSN)

  • 0304-4076

Electronic International Standard Serial Number (EISSN)

  • 1872-6895

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.