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Identification and Estimation of Discrete Games of Complete Information

  • Patrick Bajari
  • Han Hong
  • Stephen Ryan

We discuss the identification and estimation of discrete games of complete information. Following Bresnahan and Reiss (1990, 1991), a discrete game is a generalization of a standard discrete choice model where utility depends on the actions of other players. Using recent algorithms to compute all of the Nash equilibria to a game, we propose simulation-based estimators for static, discrete games. With appropriate exclusion restrictions about how covariates enter into payoffs and influence equilibrium selection, the model is identified with only weak parametric assumptions. Monte Carlo evidence demonstrates that the estimator can perform well in moderately-sized samples. As an application, we study the strategic decision of firms in spatially-separated markets to establish a presence on the Internet.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0301.

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Date of creation: Oct 2004
Date of revision:
Handle: RePEc:nbr:nberte:0301
Note: TWP
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  18. Mark D. Manuszak & Andrew Cohen, 2004. "Endogenous Market Structure with Discrete Product Differentiation and Multiple Equilibria: An Empirical Analysis of Competition Between Banks and Thrifts," GSIA Working Papers 2003-40, Carnegie Mellon University, Tepper School of Business.
  19. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
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