Economics

We study identification of differentiated product demand from market-level data when product characteristics can be endogenous. Past work suggests nonparametric identification may be impossible: that is, in addition to standard price instruments, exogenous characteristic-based instruments are essentially necessary to identify sufficiently flexible demand models with standard index restrictions. We show, however, that price counterfactuals are nonparametrically identified using recentered instruments—which combine exogenous price instruments with possibly endogenous product characteristics—under a weaker index restriction and a new condition we term faithfulness. We argue that faithfulnes..