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Empirical Analysis of a Dynamic Duopoly Model of Competition

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  • Pradeep K. Chintagunta
  • Dipak C. Jain

Abstract

Empirically validating and testing the specification of game theoretic models has received limited attention in the marketing literature. The authors provide an econometric framework for estimating the parameters of response functions when the observed data in the market place are the Nash equilibrium outcomes of an underlying dynamic duopoly game specification. Specifically, the estimation procedure accounts for the joint endogeneity of market shares and marketing efforts of market rivals using a system of simultaneous equations that included the market response function and the Nash equilibrium conditions. A formal statistical test is used to detect model misspecification. The empirical analysis is carried out using data from four product markets: pharmaceutical, soft drink, beer, and detergent. Comparisons are provided with conventional estimation of the response function parameters in which the equilibrium conditions are ignored in the estimation. Managerial implications of the empirical results are discussed.

Suggested Citation

  • Pradeep K. Chintagunta & Dipak C. Jain, 1995. "Empirical Analysis of a Dynamic Duopoly Model of Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 109-131, March.
    • Handle: RePEc:bla:jemstr:v:4:y:1995:i:1:p:109-131
    DOI: 10.1111/j.1430-9134.1995.00109.x
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    Cited by:

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    10. Erickson, Gary M., 2009. "An oligopoly model of dynamic advertising competition," European Journal of Operational Research, Elsevier, vol. 197(1), pages 374-388, August.
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    15. Prasad A. Naik & Ashutosh Prasad & Suresh P. Sethi, 2008. "Building Brand Awareness in Dynamic Oligopoly Markets," Management Science, INFORMS, vol. 54(1), pages 129-138, January.
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