Empirical Framework for Cournot Oligopoly with Private Information
60 Pages Posted: 15 Nov 2019 Last revised: 14 Jan 2023
Date Written: August 24, 2022
We propose an empirical framework for asymmetric Cournot oligopoly with private information about variable costs. First, considering a linear demand for a homogenous product with a random intercept, we characterize the Bayesian Cournot-Nash equilibrium. Then we establish the identification of the joint distribution of demand and firm-specific cost distributions. Following the identification steps, we propose a likelihood-based estimation method and apply it to the global market for crude-oil and quantify the welfare effect of private information. We also consider extensions of the model to include either product differentiation, conduct parameters, nonlinear demand, or selective entry.
Keywords: Cournot oligopoly, private information, variable costs, identification
JEL Classification: C57, D22, D43, L13
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