Revealed Preference Tests of the Cournot Model
AbstractWe consider an observer who makes a finite number of observations of an industry producing a homogeneous good, where each observation consists of the market price and firm specific production quantities.� We develop a revealed preference test (in the form of a linear program) for the hypothesis that the firms are playing a Cournot game, assuming that they have convex cost functions that do not change and the observations are generated by the demand function varying across observations.� Extending this basic result, we develop tests for the case where (in addition to changes to demand) firms' cost functions may vary across observations.� We also develop tests of Cournot interaction in cases where there are multiple products and where cost functions may be non-convex.� Applying these results to the crude oil market, we show that Cournot behavior is strongly rejected.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 506.
Date of creation: 01 Oct 2010
Date of revision:
Nonparametric test; Observable restrictions; Linear programming; Multi-product Cournot oligopoly; Collusion; Crude oil market;
Other versions of this item:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-COM-2010-10-23 (Industrial Competition)
- NEP-ENE-2010-10-23 (Energy Economics)
- NEP-IND-2010-10-23 (Industrial Organization)
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- Lee, SangMok, 2012. "The testable implications of zero-sum games," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 39-46.
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