nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2011‒03‒26
two papers chosen by
Philip Yu
Hong Kong University

  1. An empirical Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry By Vivienne Pham; David Prentice
  2. Consistent estimation of the fixed effects ordered logit model By Gregori Baetschmann; Kevin E. Staub; Rainer Winkelmann

  1. By: Vivienne Pham (School of Economics and Finance, La Trobe University); David Prentice (School of Economics and Finance, La Trobe University)
    Abstract: In this paper we empirically analyse two counterfactual situations facing an anti-trust authority following the merger of two of the largest international cigarette companies. First we estimate a nested logit model of demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are both broadly consistent with the limited independent estimates available. We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian anti-trust author- ity. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows the model successfully anticipated the behaviour of the divested brands. This suggests structural econometric analysis us- ing a nested logit may be usefully utilised by anti-trust authorities to assess the welfare implications of proposed mergers and partial divestitures.
    Date: 2010–11
  2. By: Gregori Baetschmann; Kevin E. Staub; Rainer Winkelmann
    Abstract: The paper re-examines existing estimators for the panel data fixed effects ordered logit model, proposes a new one, and studies the sampling properties of these estimators in a series of Monte Carlo simulations. There are two main findings. First, we show that some of the estimators used in the literature are inconsistent, and provide reasons for the inconsistency. Second, the new estimator is never outperformed by the others, seems to be substantially more immune to small sample bias than other consistent estimators, and is easy to implement. The empirical relevance is illustrated in an application to the effect of unemployment on life satisfaction.
    Keywords: Ordered response, panel data, correlated heterogeneity, incidental parameters
    JEL: C23 C25 J28 J64
    Date: 2011–01

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