Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information, Second Version

Aureo de Paula and Xun Tang

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper studies the inference of interaction effects (impacts of players' actions on each other's payoffs) in discrete simultaneous games with incomplete information. We propose an easily implementable test for the signs of state-dependent interaction effects that does not require parametric specifications of players' payoffs, the distributions of their private signals or the equilibrium selection mechanism. The test relies on the commonly invoked assumption that players' private signals are independent conditional on observed states. The procedure is valid in (but does not rely on) the presence of multiple equilibria in the data-generating process (DGP). As a by-product, we propose a formal test for multiple equilibria in the DGP. We also show how to extend our arguments to identify signs of interaction effects when private signals are correlated. We provide Monte Carlo evidence of the test's good performance in finite samples. We then implement the test using data on radio programming of commercial breaks in the U.S., and infer stations' incentives to synchronize their commercial breaks. Our results support the earlier finding by Sweeting (2009) that stations have stronger incentives.

Keywords: identification; inference; multiple equilibria; incomplete information games (search for similar items in EconPapers)
JEL-codes: C01 C72 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2010-06-29, Revised 2011-02-12
New Economics Papers: this item is included in nep-cis, nep-cta, nep-ecm and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information, Second Version (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:11-003

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