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A Nonparametric Test of Strategic Behavior in the Cournot Model

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  • Deb, Rahul
  • Fenske, James

Abstract

We devise a nonparametric test of strategic behavior in a multiproduct Cournot oligopoly. It is assumed that firms have cost functions that do not change over the period of observation but that market demand can change in each period. Market prices and firm-specific production quantities are observed and it is assumed that neither the inverse demand functions nor the cost functions are known. The driving assumptions of the test are that market inverse demand functions are decreasing and differentiable at each period and that cost functions are increasing and convex for each firm. Under these very general conditions, we show that this test imposes strong restrictions on observed data. We apply the test to the crude oil market and find that strategic behavior is strongly rejected.

Suggested Citation

  • Deb, Rahul & Fenske, James, 2009. "A Nonparametric Test of Strategic Behavior in the Cournot Model," MPRA Paper 16560, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16560
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    File URL: https://mpra.ub.uni-muenchen.de/16560/1/MPRA_paper_16560.pdf
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    References listed on IDEAS

    as
    1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
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    More about this item

    Keywords

    Competitive behavior; Multiproduct Cournot oligopoly; Nonparametric test; Crude oil market; OPEC.;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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