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Computational Methods for Oblivious Equilibrium

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Listed:
  • Weintraub, Gabriel Y.

    (Columbia U)

  • Benkard, C. Lanier

    (Stanford U)

  • Van Roy, Benjamin

Abstract

Oblivious equilibrium is a new solution concept for approximating Markov perfect equilibrium in dynamic models of imperfect competition among heterogeneous firms and has recently been used in multiple economic studies. In this paper, we present algorithms for computing oblivious equilibrium and for bounding approximation error. We report results from computational case studies that serve to assess both efficiency of the algorithms and accuracy of oblivious equilibrium as an approximation to Markov perfect equilibrium. We also extend the definition of oblivious equilibrium, originally proposed for models with only firm-specific idiosyncratic random shocks, and our algorithms to accommodate models with industry-wide aggregate shocks. Our results suggest that, by using oblivious equilibrium to approximate Markov perfect equilibrium, it is possible to greatly increase the set of dynamic models of imperfect competition that can be analyzed computationally.

Suggested Citation

  • Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Computational Methods for Oblivious Equilibrium," Research Papers 1969, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1969
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