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Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work

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  • Fershtman, Chaim
  • Pakes, Ariel

Abstract

With applied work in mind, we define an equilibrium notion for dynamic games with assymetric information which does not require a specification for players’ beliefs about their opponents types. This enables us to define equilibrium conditions which, at least in principal, are testable and can be computed using a simple reinforcement learning algorithm. We conclude with an example that endogenizes the maintenance decisions for electricity generators in a dynamic game among electric utilities in which the costs states of the generators are private information.

Suggested Citation

  • Fershtman, Chaim & Pakes, Ariel, 2008. "Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work," Foerder Institute for Economic Research Working Papers 275718, Tel-Aviv University > Foerder Institute for Economic Research.
  • Handle: RePEc:ags:isfiwp:275718
    DOI: 10.22004/ag.econ.275718
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    Cited by:

    1. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Computational Methods for Oblivious Equilibrium," Research Papers 1969, Stanford University, Graduate School of Business.
    2. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
    3. Lewis, Greg & Backus, Matthew, 2009. "An Estimable Demand System for a Large Auction Platform Market," Department of Economics, Working Paper Series qt8vk5j2kr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    4. Mar Reguant, 2014. "Complementary Bidding Mechanisms and Startup Costs in Electricity Markets," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1708-1742.
    5. Bernard Caillaud & Romain De Nijs, 2014. "Strategic Loyalty Reward in Dynamic Price Discrimination," Marketing Science, INFORMS, vol. 33(5), pages 725-742, September.
    6. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Markov Perfect Industry Dynamics with Many Firms," Research Papers 1919r, Stanford University, Graduate School of Business.
    7. Luís Cabral, 2005. "Collusion Theory: Where to Go Next?," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 199-206, December.
    8. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," Working Papers halshs-00622291, HAL.
    9. Patrick Bajari & Victor Chernozhukov & Han Hong & Denis Nekipelov, 2015. "Identification and Efficient Semiparametric Estimation of a Dynamic Discrete Game," NBER Working Papers 21125, National Bureau of Economic Research, Inc.
    10. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2010. "Computational Methods for Oblivious Equilibrium," Operations Research, INFORMS, vol. 58(4-part-2), pages 1247-1265, August.
    11. Ariel Pakes, 2008. "Theory and Empirical Work on Imperfectly Competitive Markets," NBER Working Papers 14117, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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