Dynamic Games in Empirical Industrial Organization

148 Pages Posted: 29 Apr 2022

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Allan Collard-Wexler

Duke University

Stephen Ryan

Washington University in St. Louis - John M. Olin Business School

Multiple version iconThere are 3 versions of this paper

Date Written: September 2, 2021

Abstract

This survey is organized around three main topics: models, econometrics, and empirical applications. Section 2 presents the theoretical framework, introduces the concept of Markov Perfect Nash Equilibrium, discusses existence and multiplicity, and describes the representation of this equilibrium in terms of conditional choice probabilities. We also discuss extensions of the basic framework, including models in continuous time, the concepts of oblivious equilibrium and experience-based equilibrium, and dynamic games where firms have non-equilibrium beliefs. In section 3, we first provide an overview of the types of data used in this literature, before turning to a discussion of identification issues and results, and estimation methods. We review different methods to deal with multiple equilibria and large state spaces. We also describe recent developments for estimating games in continuous time and incorporating serially correlated unobservables, and discuss the use of machine learning methods to solving and estimating dynamic games. Section 4 discusses empirical applications of dynamic games in IO. We start describing the first empirical applications in this literature during the early 2000s. Then, we review recent applications dealing with innovation, antitrust and mergers, dynamic pricing, regulation, product repositioning, advertising, uncertainty and investment, airline network competition, dynamic matching, and natural resources. We conclude with our view of the progress made in this literature and the remaining challenges

Keywords: Dynamic games, Industrial organization, Market competition, Structural models, Estimation, Identification, Counterfactuals

JEL Classification: C57, C63, C73, L11, L13

Suggested Citation

Aguirregabiria, Victor and Collard-Wexler, Allan and Ryan, Stephen, Dynamic Games in Empirical Industrial Organization (September 2, 2021). Available at SSRN: https://ssrn.com/abstract=4070008 or http://dx.doi.org/10.2139/ssrn.4070008

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

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Allan Collard-Wexler

Duke University ( email )

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Durham, NC 27708-0204
United States

Stephen Ryan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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