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Recent developments in empirical IO: dynamic demand and dynamic games

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  • Aguirregabiria, Victor
  • Nevo, Aviv

Abstract

Empirically studying dynamic competition in oligopoly markets requires dealing with large states spaces and tackling difficult computational problems, while handling heterogeneity and multiple equilibria. In this paper, we discuss some of the ways recent work in Industrial Organization has dealt with these challenges. We illustrate problems and proposed solutions using as examples recent work on dynamic demand for differentiated products and on dynamic games of oligopoly competition. Our discussion of dynamic demand focuses on models for storable and durable goods and surveys how researchers have used the "inclusive value" to deal with dimensionality problems and reduce the computational burden. We clarify the assumptions needed for this approach to work, the implications for the treatment of heterogeneity and the different ways it has been used. In our discussion of the econometrics of dynamics games of oligopoly competition, we deal with challenges related to estimation and counterfactual experiments in models with multiple equilibria. We also examine methods for the estimation of models with persistent unobserved heterogeneity in product characteristics, firms’ costs, or local market profitability. Finally, we discuss different approaches to deal with large state spaces in dynamic games.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27814.

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Date of creation: 29 Dec 2010
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Handle: RePEc:pra:mprapa:27814

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Keywords: Industrial Organization; Oligopoly competition; Dynamic demand; Dynamic games; Estimation; Counterfactual experiments; Multiple equilibria; Inclusive values; Unobserved heterogeneity.;

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Citations

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Cited by:
  1. Aguirregabiria, Victor & Ho, Chun-Yu, 2009. "A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments," MPRA Paper 16739, University Library of Munich, Germany.
  2. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
  3. Vivienne Pham & David Prentice, 2010. "An empirical Analysis of the Counter-factual: A Merger and Divestiture in the Australian Cigarette Industry," Working Papers 2010.08, School of Economics, La Trobe University.
  4. Hovhannisyan, Vardges & Stiegert, Kyle W. & Bozic, Marin, 2013. "On Endogeneity Of Retail Market Power In An Equilibrium Analysis: A Control Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149830, Agricultural and Applied Economics Association.
  5. Lou, Weifang & Prentice, David & Yin, Xiangkang, 2012. "What difference does dynamics make? The case of digital cameras," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 30-40.
  6. Vivienne Pham & David Prentice, 2013. "A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry," Working Papers 2013.04, School of Economics, La Trobe University.
  7. Panle Jia Barwick & Parag A. Pathak, 2011. "The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston," NBER Working Papers 17227, National Bureau of Economic Research, Inc.

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