Calibrating the AIDS and Multinomial Logit Models with Observed Product Margins

Gloria Sheu and Charles Taragin, EAG 12-7, October 2012
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We show how observed product margins may be used in lieu of an observed market elasticity to calibrate parameters for two commonly used demand forms: the Almost Ideal Demand System (AIDS) and the multinomial logit. This technique is useful for antitrust practitioners interested in simulating the eects of a merger, since estimates of product margins are often easier to obtain than estimates of market elasticities.

Keywords: demand calibration, multinomial logit, almost ideal demand system, AIDS

JEL classification: L40, K21

Updated July 24, 2015