/*
Misspecification Example: Ommited Variables 
Sales of a product depends on its own price and the competitor's price. 
It has negative relationship with its own price and positive relationship 
with competitor's price. This is a simulation data using specific 
coefficients to generate the data. The true model includes price (x1) 
and compprice(x2) and 
True Model: Price = 10 + -0.5 Price + 0.7 Compprice + ei

*/

clear all
set obs 1000
set seed 1234
 
gen ei = rnormal(0,1)
gen price =  rnormal(10,2)
sum
gen r1 = rnormal(10,2)
gen compprice = 0.5*price + 0.5*r1

* Here are the true model for sale 
gen sale = 10 - 0.5*price + 0.7*compprice + ei
corr sale price compprice

* Here is the regression model 

reg sale price
reg sale price compprice