Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games

Advances in Economics and Econometrics. Tenth World Congress of the Econometric Society. Volume 3, Econometrics. (May 2013). D. Acemoglu, M. Arellano, and E. Deckel, eds.

60 Pages Posted: 7 Jan 2011 Last revised: 30 Oct 2016

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Aviv Nevo

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1, 2013

Abstract

Empirically studying dynamic competition in oligopoly markets requires dealing with large states spaces and tackling difficult computational problems, while handling heterogeneity and multiple equilibria. In this paper, we discuss some of the ways recent work in Industrial Organization has dealt with these challenges. We illustrate problems and proposed solutions using as examples recent work on dynamic demand for differentiated products and on dynamic games of oligopoly competition. Our discussion of dynamic demand focuses on models for storable and durable goods and surveys how researchers have used the "inclusive value" to deal with dimensionality problems and reduce the computational burden. We clarify the assumptions needed for this approach to work, the implications for the treatment of heterogeneity and the different ways it has been used. In our discussion of the econometrics of dynamics games of oligopoly competition, we deal with challenges related to estimation and counterfactual experiments in models with multiple equilibria. We also examine methods for the estimation of models with persistent unobserved heterogeneity in product characteristics, firms’ costs, or local market profitability. Finally, we discuss different approaches to deal with large state spaces in dynamic games.

Keywords: Industrial Organization, Oligopoly Competition, Dynamic Demand, Dynamic Games, Estimation, Counterfactual Experiments, Multiple Equilibria, Inclusive Values, Unobserved Heterogeneity

Suggested Citation

Aguirregabiria, Victor and Nevo, Aviv, Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games (May 1, 2013). Advances in Economics and Econometrics. Tenth World Congress of the Econometric Society. Volume 3, Econometrics. (May 2013). D. Acemoglu, M. Arellano, and E. Deckel, eds.. Available at SSRN: https://ssrn.com/abstract=1735483 or http://dx.doi.org/10.2139/ssrn.1735483

Victor Aguirregabiria

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

Aviv Nevo (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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