This paper considers the effect of an airline's scale of operation at an airport on the profitability of routes flown out of that airport. The empirical methodology uses the entry decisions of airlines as indicators of underlying profitability; the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city-pair profitability. These estimates imply that city-pair profits increase in airport presence and decrease rapidly in the number of entering firms. The literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms. Copyright 1992 by The Econometric Society.

We examine identification of differentiated products demand when one has “micro data” linking the characteristics and choices of individual consumers. Our model nests standard specifications featuring rich observed and unobserved consumer heterogeneity as well as product/market‐level unobservables that introduce the problem of econometric endogeneity. Previous work establishes identification of such models using market‐level data and instruments for all prices and quantities. Micro data provides a panel structure that facilitates richer demand specifications and reduces requirements on both the number and types of instrumental variables. We address identification of demand in the standard case in which nonprice product characteristics are assumed exogenous, but also cover identification of demand elasticities and other key features when these product characteristics are endogenous and not instrumented. We discuss implications of these results for applied work.

We present new identification results for a class of nonseparable nonparametric simultaneous equations models introduced by Matzkin (2008). These models combine traditional exclusion restrictions with a requirement that each structural error enter through a “residual index.†Our identification results are constructive and encompass a range of special cases with varying demands on the exogenous variation provided by instruments and the shape of the joint density of the structural errors. The most important results demonstrate identification when instruments have only limited variation. Even when instruments vary only over a small open ball, relatively mild conditions on the joint density suffice. We also show that the primary sufficient conditions for identification are verifiable and that the maintained hypotheses of the model are falsifiable.

We present new identification results for nonparametric models of differentiated products markets, using only market level observables. We specify a nonparametric random utility discrete choice model of demand allowing rich preference heterogeneity, product/market unobservables, and endogenous prices. Our supply model posits nonparametric cost functions, allows latent cost shocks, and nests a range of standard oligopoly models. We consider identification of demand, identification of changes in aggregate consumer welfare, identification of marginal costs, identification of firms' marginal cost functions, and discrimination between alternative models of firm conduct. We explore two complementary approaches. The first demonstrates identification under the same nonparametric instrumental variables conditions required for identification of regression models. The second treats demand and supply in a system of nonparametric simultaneous equations, leading to constructive proofs exploiting exogenous variation in demand shifters and cost shifters. We also derive testable restrictions that provide the first general formalization of Bresnahan's (1982) intuition for empirically distinguishing between alternative models of oligopoly competition. From a practical perspective, our results clarify the types of instrumental variables needed with market level data, including tradeoffs between functional form and exclusion restrictions.

Abstract We present a new class of methods for identification and inference in dynamic models with serially correlated unobservables, which typically imply that state variables are econometrically endogenous. In the context of Industrial Organization, these state variables often reflect econometrically endogenous market structure. We propose the use of Generalized Instrument Variables methods to identify those dynamic policy functions that are consistent with instrumental variable (IV) restrictions. Extending popular “two-step” methods, these policy functions then identify a set of structural parameters that are consistent with the dynamic model, the IV restrictions and the data. We provide computed illustrations to both single-agent and oligopoly examples. We also present a simple empirical analysis that, among other things, supports the counterfactual study of an environmental policy entailing an increase in sunk costs.