Revealed Preference Tests of the Cournot Model
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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Volume (Year): 81 (2013)
Issue (Month): 6 (November)
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