This dissertation consists of three independent but related papers. All of them are devoted to estimate demand functions in presence of unobservable product attributes, such as quality, using different identification strategies. The first two exercises are based on a discrete choice model using the product-market approach developed by Berry (1994) with aggregate data information for gum and beer consumption. The third paper uses a control function approach as an identification strategy in order to estimate the choice model using disaggregated (micro level) data on household choices. These exercises reveal the importance of controlling for price endogeneity due to the existence of unobservable product attributes incorporating substantial bias in the coefficients when ignored.

"The discrete choice approach provides an ideal framework for describing the demands for differentiated products and can be used for studying most product differentiation models in the literature. By introducing extra dimensions of product heterogeneity, the framework also provides richer models of firm location and product selection."--BOOK JACKET.

The paper provides a general framework for the analysis of noncooperative competition between multi-branch networks when consumers have heterogeneous preferences. This framework allows for ill-studied conditions, such as branch loyalty and economies of scope, to be explored in terms of their role in shaping address solutions and firm profits. Geographic and quality differentiation as well as firm profits are shown to be dependent upon the magnitude of the loyalty factor and upon the extend of economies of scope. Real world situations in the retail industry are interpreted in the light of the results of the analysis.

This dissertation studies the effect of heterogeneity in consumer incomes on outcomes in vertically differentiated markets. When products are differentiated in quality, the consumer's choice of a particular product is a function of her income. Thus, the distribution of incomes plays an important role in shaping the demand for individual products in vertically differentiated markets. The first two chapters of the dissertation study the demand for passenger cars and trucks in the US. These vehicles are differentiated by quality that depends on vehicle's age. The first chapter studies the relationship between the distribution of consumer incomes and the distribution of vehicle vintages using a dynamic, heterogeneous agents model. The model predicts that higher per capita incomes are associated with younger vehicle stocks, if the vehicle ownership rates are high. If the per capita incomes are low, and so are the endogenous vehicle ownership rates, increases in income may lead to the aging of vehicles, by encouraging entry of lower income consumers into vehicle ownership via purchases of older vehicles. Higher levels of income inequality are associated with older vehicle stocks. The second chapter of the dissertation asks whether some of the observed increases in the average age of vehicles in the US can be attributed to the rise in real consumer incomes and the resulting changes in the composition of demand for different vehicle vintages. The dynamic, non-stationary, heterogeneous agents model, estimated on the aggregate vehicle ownership data for the US over the 1967-2001 period, provides a positive answer to this question. The third chapter of the dissertation studies the effect of inequality in consumer incomes on firms' entry, location, and pricing decisions in a static oligopoly model of vertically differentiated products. This paper computes the Nash equilibrium of a three-stage game similar to Shaked and Sutton (1982), to find that greater inequality in consumer incomes leads to the entry of more firms and results in more intense quality competition among the entrants. The consumption inequality is lower and the aggregate consumer welfare is higher in economies with greater income inequality.

This paper considers a linear-pricing monopolist that conducts vertical product differentiation. Previous analyses consider customers who either have unit demand or firms who conduct nonlinear pricing. In this paper, customers' opportunity cost of time generates a demand for quality. Customers differ in either their demand, income or taste for quality. Differences in income and taste for quality are sources of vertical differentiation. The presence of quality distortion and the variety that may exhibit it are dependent on the functional form of the customer types' demand.