COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1337

Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market

Steven Berry, James Levinsohn and Ariel Pakes

November 2001

In this paper we provide an algorithm for estimating characteristic based demand models from alternative data sources, and apply it to new data on the market for passenger vehicles. We find that, provided care is taken in constructing the demand system and rich enough data are available, the characteristic based model can both rationalize existing results and provide realistic out of sample predictions.

Keywords: Product Differentiation, Autos, Demand Estimation

JEL Classification: D43