Empirical Framework for Cournot Oligopoly with Private Information

60 Pages Posted: 15 Nov 2019 Last revised: 14 Jan 2023

See all articles by Gaurab Aryal

Gaurab Aryal

Washington University in St. Louis

Federico Zincenko

University of Nebraska at Lincoln - College of Business Administration

Date Written: August 24, 2022

Abstract

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

Suggested Citation

Aryal, Gaurab and Zincenko, Federico, Empirical Framework for Cournot Oligopoly with Private Information (August 24, 2022). RAND Journal of Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3482154 or http://dx.doi.org/10.2139/ssrn.3482154

Gaurab Aryal (Contact Author)

Washington University in St. Louis ( email )

Seigle Hall 335
One Brookings Drive
St. Louis, MO 63130
United States

Federico Zincenko

University of Nebraska at Lincoln - College of Business Administration ( email )

1240 R Street
P.O. Box 880405
Lincoln, NE 68588-0405
United States

HOME PAGE: http://https://sites.google.com/site/fzincenk

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