A Framework for Dynamic Oligopoly in Concentrated Industries

Bar Ifrach and Gabriel Y. Weintraub
Additional contact information
Bar Ifrach: Airbnb
Gabriel Y. Weintraub: Columbia University

Research Papers from Stanford University, Graduate School of Business

Abstract: In this paper we introduce a new computationally tractable framework for Ericson and Pakes (1995)-style dynamic oligopoly models that overcomes the computational complexity involved in computing Markov perfect equilibrium (MPE). First, we define a new equilibrium concept that we call momentbased Markov equilibrium (MME), in which firms keep track of their own state, the detailed state of dominant firms, and few moments of the distribution of fringe firms' states. Second, we provide guidelines to use MME in applied work and illustrate with an application how it can endogenize the market structure in a dynamic industry model even with hundreds of firms. Third, we develop a series of results that provide support for using MME as an approximation. We present numerical experiments showing that MME approximates MPE for important classes of models. Then, we introduce novel unilateral deviation error bounds that can be used to test the accuracy of MME as an approximation in large-scale settings. Overall, our new framework opens the door to study novel issues in industry dynamics.

Date: 2016-03
New Economics Papers: this item is included in nep-com
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/419606
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/419606 [301 Moved Permanently]--> https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/419606)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3449

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().