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Computational Methods for Oblivious Equilibrium

  • Weintraub, Gabriel Y.

    (Columbia U)

  • Benkard, C. Lanier

    (Stanford U)

  • Van Roy, Benjamin
Registered author(s):

    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.

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    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP1969.pdf
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    Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1969.

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    Date of creation: Apr 2007
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    Handle: RePEc:ecl:stabus:1969
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    1. Schivardi, Fabiano & Schneider, Martin, 2005. "Strategic Experimentation and Disruptive Technological Change," CEPR Discussion Papers 4925, C.E.P.R. Discussion Papers.
    2. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09.
    3. Fershtman, Chaim & Pakes, Ariel, 2009. "Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work," CEPR Discussion Papers 7323, C.E.P.R. Discussion Papers.
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    6. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc.
    7. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, 06.
    8. Allan Collard-Wexler, 2011. "Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry," Working Papers 11-25, Center for Economic Studies, U.S. Census Bureau.
    9. David Besanko & Ulrich Doraszelski, 2002. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," Computing in Economics and Finance 2002 196, Society for Computational Economics.
    10. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
    11. Berry, Steven & Pakes, Ariel, 1993. "Some Applications and Limitations of Recent Advances in Empirical Industrial Organization: Merger Analysis," American Economic Review, American Economic Association, vol. 83(2), pages 247-52, May.
    12. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA.
    13. Caplin, A. & Nalebuff, B., 1989. "Aggregation And Imperfect Competition: On The Existence Of Equilibrium," Discussion Papers 1989_30, Columbia University, Department of Economics.
    14. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2005. "Markov perfect industry dynamics with many firms," Working Paper Series 2005-23, Federal Reserve Bank of San Francisco.
    15. Ronald L. Goettler & Christine A. Parlour, 2004. "Equilibrium in a Dynamic Limit Order Market," 2004 Meeting Papers 757, Society for Economic Dynamics.
    16. Minjae Song, 2011. "A Dynamic Analysis Of Cooperative Research In The Semiconductor Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1157-1177, November.
    17. de Roos, Nicolas, 2004. "A model of collusion timing," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 351-387, March.
    18. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 581-611.
    19. Gabriel Weintraub & C. Lanier Benkard & Ben Van Roy, 2005. "Markov Perfect Industry Dynamics with Many Firms," NBER Working Papers 11900, National Bureau of Economic Research, Inc.
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