when demand projections are too optimistic: a structural model of product line and pricing decisions
We propose a methodology to estimate structural models of product line competition. This methodology enables researchers to estimate demand systems accounting for the endogeneity of product introductions, an issue which is typically ignored in the empirical literature in marketing and economics. In particular, we find that not accounting for this form of endogeneity leads to overoptimistic estimates of total demand due to sample selection bias. More importantly, biased estimates of demand can generate misleading managerial recommendations and inaccurate inferences about consumer welfare. In addition, the formulation of a structural model of product line competition enables a researcher to consider policy simulations aimed at studying the consequences of changes in a number of structural factors, such as consumer preferences, cost structure, ownership and capacity.
| Departamento de Ingeniería Industrial |
| Facultad de Ciencias Físicas y Matemáticas | Universidad de Chile |
República 701, Santiago, Chile | Teléfono:(562)978-4072 | Fax:(562)978-4011