Dynamic Games in Empirical Industrial Organization

Victor Aguirregabiria (), Allan Collard-Wexler and Stephen Ryan

No 29291, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C01 L0 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-ore and nep-reg
Note: IO
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Published as Victor Aguirregabiria, Allan Collard-Wexler, Stephen P. Ryan, Chapter 4 - Dynamic games in empirical industrial organization☆☆We are grateful to the editors and to four anonymous referees for constructive comments and suggestions. We would like to thank Seohee Kim for research assistance, and Peter Arcidiacono, John Asker, Nick Buchholz, Yanyou Chen, Jan De Loecker, Ulrich Doraszelski, Gautam Gowrisankaran, Robin Lee, Yao Luo, Mathieu Marcoux, Eduardo Souza-Rodrigues, Adam Rosen, and Daniel Xu for productive conversations about the manuscript., Editor(s): Kate Ho, Ali Hortaçsu, Alessandro Lizzeri, Handbook of Industrial Organization, Elsevier, Volume 4, Issue 1, 2021, Pages 225-343

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