Demand estimation when some prices are unobserved: an application to fresh lettuce

This study proposes a linear two-stage approach to derive prices of observations when reported consumption is zero. In the first stage, demand equations are estimated using an ad hoc filling of unobserved prices. Then, each estimated demand equation is solved for price and a numerical estimate of the price, which drives consumption to zero, referred to as the choke price, is calculated. The demand equations are re-estimated with the choke-price series replacing the initial ad hoc prices. Although differing claims can be made on the appropriateness of the chosen method for filling prices, we demonstrate significant differences in statistical fit of the demand model and own-price demand elasticities among alternative approaches.