Revealed Preference Tests of the Cournot Model

James Fenske, John Quah, Andres Carvajal and Rahul Deb

No 506, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We consider an observer who makes a finite number of observations of an industry producing a homogeneous good, where each observation consists of the market price and firm specific production quantities. We develop a revealed preference test (in the form of a linear program) for the hypothesis that the firms are playing a Cournot game, assuming that they have convex cost functions that do not change and the observations are generated by the demand function varying across observations. Extending this basic result, we develop tests for the case where (in addition to changes to demand) firms' cost functions may vary across observations. We also develop tests of Cournot interaction in cases where there are multiple products and where cost functions may be non-convex. Applying these results to the crude oil market, we show that Cournot behavior is strongly rejected.

Keywords: Nonparametric test; Observable restrictions; Linear programming; Multi-product Cournot oligopoly; Collusion; Crude oil market (search for similar items in EconPapers)
JEL-codes: C14 C61 C72 D21 D43 (search for similar items in EconPapers)
Date: 2010-10-01
New Economics Papers: this item is included in nep-com, nep-ene and nep-ind
References: View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Revealed Preference Tests of the Cournot Model (2013)
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