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A Geometric Approach to Inference in Set-Identified Entry Games

Author

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  • Christian Bontemps

    (ENAC - Ecole Nationale de l'Aviation Civile, TSE-R - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Rohit Kumar

    (Indian Statistical Institute [New Delhi])

Abstract

In this paper, we consider inference procedures for entry games with complete information. Due to the presence of multiple equilibria, we know that such a model may be set-identified without imposing further restrictions. We complete the model with the unknown selection mechanism and characterize geometrically the set of predicted choice probabilities, in our case, a convex polytope with many facets. Testing whether a parameter belongs to the identified set is equivalent to testing whether the true choice probability vector belongs to this convex set. Using tools from the convex analysis, we calculate the support function and the extreme points. The calculation yields a finite number of inequalities, when the explanatory variables are discrete, and we characterized them once for all. We also propose a procedure that selects the moment inequalities without having to evaluate all of them. This procedure is computationally feasible for any number of players and is based on the geometry of the set. Furthermore, we exploit the specific structure of the test statistic used to test whether a point belongs to a convex set to propose the calculation of critical values that are computed once and independent of the value of the parameter tested, which drastically improves the calculation time. Simulations in a separate section suggest that our procedure performs well compared with existing methods.

Suggested Citation

  • Christian Bontemps & Rohit Kumar, 2020. "A Geometric Approach to Inference in Set-Identified Entry Games," Post-Print hal-02137356, HAL.
  • Handle: RePEc:hal:journl:hal-02137356
    DOI: 10.1016/j.jeconom.2020.04.021
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02137356
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    References listed on IDEAS

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    Cited by:

    1. Gualdani, Cristina, 2021. "An econometric model of network formation with an application to board interlocks between firms," Journal of Econometrics, Elsevier, vol. 224(2), pages 345-370.
    2. Christian Bontemps & Raquel Menezes Bezerra Sampaio, 2020. "Entry games for the airline industry," Post-Print hal-02137358, HAL.

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    Keywords

    Set-identification; Convex set; Entry games; Support function;
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