Bounds for best response functions in binary games

Brendan Kline and Elie Tamer

Journal of Econometrics, 2012, vol. 166, issue 1, 92-105

Abstract: This paper studies the identification of best response functions in binary games without making strong parametric assumptions about the payoffs. The best response function gives the utility maximizing response to a decision of the other players. This is analogous to the response function in the treatment–response literature, taking the decision of the other players as the treatment, except that the best response function has additional structure implied by the associated utility maximization problem. Further, the relationship between the data and the best response function is not the same as the relationship between the data and the response function in the treatment–response literature. We focus especially on the case of a complete information entry game with two firms. We also discuss the case of an entry game with many firms, non-entry games, and incomplete information. Our analysis of the entry game is based on the observation of realized entry decisions, which we then link to the best response functions under various assumptions including those concerning the level of rationality of the firms, including the assumption of Nash equilibrium play, the symmetry of the payoffs between firms, and whether mixed strategies are admitted.

Keywords: Binary games; Entry games; Best response functions; Multiple equilibria; Mixed strategies; Nash equilibrium; Levels of rationality; Treatment effects; Peer effects (search for similar items in EconPapers)
JEL-codes: C14 C72 D43 L13 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:166:y:2012:i:1:p:92-105

DOI: 10.1016/j.jeconom.2011.06.008

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