blp

Introduction This note goes over the Random Coefficient Logit model, often referred to as the “BLP” model, proposed by Berry et al. (1995). This model offers a method for estimating demand that considers the varying demand responses to changes in price while addressing issues related to price endogeneity. Outline Begin by establishing an indirect utility function for consumer \(i\) consuming product \(j\) in market \(m\). Transform the indirect utiltiy function into a composite of mean utility, which applies uniformly to all consumers using product j in market m, and individual-specific random components that capture consumer tastes (preferences)....