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Revealed Preference Tests of the Cournot Model

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  • James Fenske
  • John Quah
  • Andres Carvajal

Abstract

We 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 Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 506.

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Date of creation: 01 Oct 2010
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Handle: RePEc:oxf:wpaper:506

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Related research

Keywords: Nonparametric test; Observable restrictions; Linear programming; Multi-product Cournot oligopoly; Collusion; Crude oil market;

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Cited by:
  1. Susan Snyder & Indrajit Ray, 2004. "Observable implications of Nash and subgame-perfect behavior in extensive games," Econometric Society 2004 North American Summer Meetings 407, Econometric Society.
  2. Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2011. "The empirical content of Cournot competition," Center for Economic Studies - Discussion papers ces11.11, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  3. Lee, SangMok, 2012. "The testable implications of zero-sum games," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 39-46.
  4. Alfred Galichon & John Quah, 2013. "Symposium on revealed preference analysis," Economic Theory, Springer, vol. 54(3), pages 419-423, November.

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