Identification and Estimation of Entry Games under Symmetry of Unobservables

75 Pages Posted: 11 Mar 2019

Date Written: January 30, 2019

Abstract

This paper provides a new point identification and estimation for two-player entry games with complete information under a symmetric condition on unobservables. Neither equilibrium selection nor distributional assumption is required. In addition, a weaker support condition is used in comparison to the existing literature. Following the identification, this paper proposes a new estimator, that, unlike existing estimators, is shown to have root-n consistency. This paper further constructs a test statistic to test the symmetry condition. Monte Carlo evidence demonstrates that the estimator performs well in moderate-sized samples and is robust to unimodal and multimodal error distributions. Finally, this paper applies the new method to the entry game of discount retailers in Jia (2008).

Keywords: Point Identification, Entry Games, Endogeneity, Central Symmetry

JEL Classification: C35, C31, C36, L13

Suggested Citation

Zhou, Yu, Identification and Estimation of Entry Games under Symmetry of Unobservables (January 30, 2019). Available at SSRN: https://ssrn.com/abstract=3328270

Yu Zhou (Contact Author)

Fudan University ( email )

600 GuoQuan Road
Shanghai, 200433
China

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