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Estimating installed-base effects in product adoption: Borrowing IVs from the dynamic panel data literature

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  • Park, Minjung

Abstract

Estimating installed-base effects for product adoption in the presence of unobserved heterogeneity is challenging since the typical solution of including fixed effects leads to inconsistent estimates in models with installed base. Narayanan and Nair (2013) highlight this problem and propose a bias correction method as a solution to the problem. This research note proposes an alternative solution: Borrowing IVs from the dynamic panel data literature. As lags and lagged differences of the installed base are used as instruments after first-differencing, this approach does not require external instruments and therefore has the key advantage of being easily accessible in many settings. I present Monte Carlo results to demonstrate the performance of the proposed approach.

Suggested Citation

  • Park, Minjung, 2020. "Estimating installed-base effects in product adoption: Borrowing IVs from the dynamic panel data literature," Journal of choice modelling, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:eejocm:v:37:y:2020:i:c:s1755534520300440
    DOI: 10.1016/j.jocm.2020.100247
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    References listed on IDEAS

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    1. Raghuram Iyengar & Christophe Van den Bulte & Thomas W. Valente, 2011. "Opinion Leadership and Social Contagion in New Product Diffusion," Marketing Science, INFORMS, vol. 30(2), pages 195-212, 03-04.
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    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    More about this item

    Keywords

    Installed-base effects; Dynamic panel data models; Product adoption;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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