Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 6: Estimates of US postal price elasticities of demand derived from a random- coefficients discrete-choice normal model
Reliable estimates of demand parameters, particularly own-price and cross-price elasticities, are essential for many applications of economic theory to issues of postal regulation. However, conventional econometric approaches typically fail to produce complete and consistent estimates of these elasticities. The failure occurs because the demand equations for a conventional model typically include each product’s own price but exclude the prices of most of the possible postal substitutes. Two recent examples of models fit to US data that truncate the price variables in this way are by Pearsall (2011) and Thress (2012). In this chapter we present a table of own-price and cross-price elasticities for selected US postal services taken from a complete matrix of consistent estimates of price elasticities for 15 categories of US postal services for the fiscal year (PFY) 2011. They were produced by fitting a model using an econometric method that derives from the random-coefficients discrete-choice logit model and estimation methodology of Berry, Levinsohn and Pakes (BLP, 1995; Nevo, 2000a, 2000b). To our knowledge, the BLP/Nevo approach has not previously been tried in postal economics.
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