Demand estimation without outside good shares

Abstract

The BLP model is the workhorse framework for estimating demand for differentiated products using aggregate product shares. In practice, however, the share of the outside good is often unavailable. This paper studies identification and inference in the BLP model when the share of the outside good is unobserved. We show that the model is partially identified, and we derive the identified sets for the structural parameters and other quantities of economic interest. We also develop inference procedures based on moment inequalities that deliver valid confidence sets for these structural parameters and quantities of economic interest. We illustrate our results with an empirical application based on the tuna data analyzed by Gandhi et al. (2023).