Endogeneity and Simultaneity in Competitive Pricing and Advertising: A Logit Demand Analysis

In this article, we use four data sets to provide a benchmark study of the effects of accounting for endogeneity and simultaneity in estimating marketing-mix effects in a logit demand framework. We compare the results obtained from accounting for endogeneity only to those from accounting for both endogeneity and simultaneity, and in the latter case we allow for more general models of firm behavior to examine the consequences of imposing assumptions about the behavior of firms. We find that accounting for both endogeneity and simultaneity not only affects the parameter estimates but also results in efficiency gains that affect the statistical significance of the estimates.