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Oblivious Equilibrium for Concentrated Industries

  • C. Lanier Benkard
  • Przemyslaw Jeziorski
  • Gabriel Y. Weintraub

This paper explores the application of oblivious equilibrium to concentrated industries. We define an extended notion of oblivious equilibrium that we call partially oblivious equilibrium (POE) that allows for there to be a set of "dominant firms'', whose firm states are always monitored by every other firm in the market. We perform computational experiments that show that POE are often close to MPE in concentrated industries with characteristics similar to real world industries even when OE are not. We derive error bounds for evaluating the performance of POE when MPE cannot be computed. Finally, we demonstrate an important trade-off facing empirical researchers between implementing an equilibrium concept that is computationally light in a richer economic model, and implementing MPE in a simpler one.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19307.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19307
Note: IO PR
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  13. 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.
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  17. Przemysław Jeziorski, 2014. "Estimation of cost efficiencies from mergers: application to US radio," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 816-846, December.
  18. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2008. "Markov Perfect Industry Dynamics With Many Firms," Econometrica, Econometric Society, vol. 76(6), pages 1375-1411, November.
  19. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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  23. Chaim Fershtman & Ariel Pakes, 2012. "Dynamic Games with Asymmetric Information: A Framework for Empirical Work," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1611-1661.
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