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Estimating Dynamic Models of Imperfect Competition

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Author Info
J. Levin
P. Bajari

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Abstract

We describe a two-step algorithm for estimating dynamic games under the assumption that behavior is consistent with Markov Perfect Equilibrium. In the first step, the policy functions and the law of motion for the state variables are estimated. In the second step, the remaining structural parameters are estimated using the optimality conditions for equilibrium. The second step estimator is a simple simulated minimum distance estimator. The algorithm applies to a broad class of models, including I.O.\ models with both discrete and continuous controls such as the Ericson and Pakes (1995) model. We test the algorithm on a class of dynamic discrete choice models with normally distributed errors, and a class of dynamic oligopoly models similar to that of Pakes and McGuire (1994)

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 579.

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Date of creation: 2004
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Handle: RePEc:red:sed004:579

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Keywords: oligopoly markov estimation;

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Find related papers by JEL classification:
L0 - Industrial Organization - - General
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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