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Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition

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  • Peter Arcidiacono
  • Patrick Bayer
  • Jason R. Blevins
  • Paul B. Ellickson

Abstract

This paper provides a method for estimating and solving dynamic discrete choice models in a continuous time framework that is computationally light. The method is particularly useful in dynamic games. In the proposed framework, players face a standard dynamic discrete choice problem at decision times that occur stochastically. The resulting stochastic-sequential structure naturally admits the use of CCP methods for estimation and makes it possible to compute counterfactual simulations for relatively high-dimensional games. We apply our techniques to examine the impact of Walmart’s entry into the retail grocery industry, showing that even the threat of entry by Walmart has a substantial effect on market structure.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18449.

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Date of creation: Oct 2012
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Handle: RePEc:nbr:nberwo:18449

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  16. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
  17. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
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  20. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2008. "Markov Perfect Industry Dynamics With Many Firms," Econometrica, Econometric Society, vol. 76(6), pages 1375-1411, November.
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