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Computational Methods for Oblivious Equilibrium

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Author Info
Weintraub, Gabriel Y. (Columbia U)
Benkard, C. Lanier (Stanford U)
Van Roy, Benjamin
Abstract

Oblivious equilibrium is a new solution concept for approximating Markov perfect equilibrium in dynamic models of imperfect competition among heterogeneous firms and has recently been used in multiple economic studies. In this paper, we present algorithms for computing oblivious equilibrium and for bounding approximation error. We report results from computational case studies that serve to assess both efficiency of the algorithms and accuracy of oblivious equilibrium as an approximation to Markov perfect equilibrium. We also extend the definition of oblivious equilibrium, originally proposed for models with only firm-specific idiosyncratic random shocks, and our algorithms to accommodate models with industry-wide aggregate shocks. Our results suggest that, by using oblivious equilibrium to approximate Markov perfect equilibrium, it is possible to greatly increase the set of dynamic models of imperfect competition that can be analyzed computationally.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1969.

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Date of creation: Apr 2007
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Handle: RePEc:ecl:stabus:1969

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  1. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Gautam Gowrisankaran & Robert J. Town, 1997. "Dynamic Equilibrium in the Hospital Industry," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(1), pages 45-74, 03. [Downloadable!] (restricted)
  3. Ronald L. Goettler & Christine A. Parlour, 2004. "Equilibrium in a Dynamic Limit Order Market," 2004 Meeting Papers 757, Society for Economic Dynamics.
  4. Chaim Fershtman & Ariel Pakes, 2000. "A Dynamic Oligopoly with Collusion and Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 207-236, Summer.
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  5. Gabriel Weintraub & C. Lanier Benkard & Ben Van Roy, 2005. "Markov Perfect Industry Dynamics with Many Firms," NBER Working Papers 11900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Berry, Steven & Pakes, Ariel, 1993. "Some Applications and Limitations of Recent Advances in Empirical Industrial Organization: Merger Analysis," American Economic Review, American Economic Association, vol. 83(2), pages 247-52, May. [Downloadable!] (restricted)
  7. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2005. "Markov perfect industry dynamics with many firms," Working Paper Series 2005-23, Federal Reserve Bank of San Francisco. [Downloadable!]
  8. Victor Aguirregabiria & Pedro Mira, 2007. "Sequential Estimation of Dynamic Discrete Games," Econometrica, Econometric Society, vol. 75(1), pages 1-53, 01. [Downloadable!] (restricted)
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  9. de Roos, Nicolas, 2004. "A model of collusion timing," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 351-387, March. [Downloadable!] (restricted)
  10. Fershtman, Chaim & Pakes, Ariel, 2005. "Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work," CEPR Discussion Papers 5024, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Stephen Ryan, 2005. "The Costs of Environmental Regulation in a Concentrated Industry," Working Papers 0510, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  12. David Besanko & Ulrich Doraszelski, 2004. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 23-49, Spring.
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