A Critique on Modelling Cross-sectional Heterogeneity with Attribute Variables and Fixed Effects
نویسندگان
چکیده
In this note we point out that in panel models which include an attribute variable together with fixed effects, circumventing the dummy variable trap by an arbitrary zero restriction straightly leads to serious misinterpretations. As an example we consider the widely cited paper by Kalyanaram and Urban (1992) on the impact of order of market entry on the market share. We show that their major findings are owing to an arbitrary choice of an identifying zero restriction among the parameters associated with brand specific dummies. As a conclusion we recommend to combine attribute variables with random rather than fixed effects.
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