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Firms' Beliefs and Learning: Models, Identification, and Empirical Evidence

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  • Victor Aguirregabiria
  • Jihye Jeon

Abstract

This paper reviews recent literature on structural models of oligopoly competition where firms have biased beliefs about primitives of the model (e.g. demand, costs) or about the strategic behavior of other firms in the market. We describe different structural models that have been proposed to study this phenomenon and examine the approaches used to identify firms' beliefs. We discuss empirical results in recent studies and show that accounting for firms' biased beliefs and learning can have important implications on our measures and interpretation of market efficiency.

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  • Victor Aguirregabiria & Jihye Jeon, 2018. "Firms' Beliefs and Learning: Models, Identification, and Empirical Evidence," Working Papers tecipa-620, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-620
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    More about this item

    Keywords

    Beliefs; Dynamics; Identification; Learning; Non-equilibrium beliefs; Oligopoly competition; Structural models;

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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