IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v17y2025i1p238-81.html
   My bibliography  Save this article

Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

Author

Listed:
  • Alexander MacKay
  • Nathan H. Miller

Abstract

We consider the identification of empirical models of supply and demand with imperfect competition. We show that a restriction on the covariance between unobserved demand and cost shocks can resolve endogeneity and identify the price parameter. We demonstrate how to employ this approach in estimation, and we compare it to the method of instrumental variables. Our formal results also indicate that weaker covariance restrictions can bound the price parameter. We illustrate the covariance restriction approach with applications to ready-to-eat cereal, cement, and airlines.

Suggested Citation

  • Alexander MacKay & Nathan H. Miller, 2025. "Estimating Models of Supply and Demand: Instruments and Covariance Restrictions," American Economic Journal: Microeconomics, American Economic Association, vol. 17(1), pages 238-281, February.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:1:p:238-81
    DOI: 10.1257/mic.20230024
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mic.20230024
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mic.20230024.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mic.20230024.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/mic.20230024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:17:y:2025:i:1:p:238-81. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.