IDEAS home Printed from
   My bibliography  Save this paper

Deciding Between Competition and Collusion


  • Patrick Bajari
  • Lixin Ye


May 2001 In many studies in empirical industrial organization, the economist needs to decide between several non-nested models of industry equilibrium. In this paper, we develop a new approach to the model selection problem that can be used when the economist must decide between models with bid-rigging and models without bid-rigging. We elicit from industry experts a prior distribution over markups across auctions. This induces a prior distribution over structural cost parameters. We then use Bayes Theorem to compute posterior probabilities for several non-nested models of industry equilibrium. In many settings, we believe that it is useful to formally incorporate the a prior beliefs of industry experts into estimation, especially in small samples where asymptotic approximations may be unreliable. We apply our methodology to a data set of bidding by construction firms in the Midwest. The techniques we propose are not computationally demanding, use flexible functional forms and can be programmed using most standard statistical packages. Working Papers Index

Suggested Citation

  • Patrick Bajari & Lixin Ye, 2001. "Deciding Between Competition and Collusion," Working Papers 01008, Stanford University, Department of Economics.
  • Handle: RePEc:wop:stanec:01008

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:stanec:01008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.