Estimating Market Power and Strategies

Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 8
Foreword......Page 13
THREE MAIN QUESTIONS......Page 15
STRUCTURE–CONDUCT–PERFORMANCE......Page 17
STATIC MODELS......Page 19
DYNAMICS......Page 21
STRATEGIES......Page 25
TWO Structure–Conduct–Performance......Page 27
RATE OF RETURN......Page 28
Price–Cost Margins......Page 32
MEASURES OF MARKET STRUCTURE......Page 33
Concentration Statistics......Page 34
Problems with Using Concentration Measures......Page 36
Summary Statistic Biases......Page 37
Barriers to Entry......Page 38
Rates of Return and Industry Structure......Page 39
Price–Average Cost Margins......Page 41
Price–Marginal Cost Margins......Page 42
International Studies of Performance and Structure......Page 44
Measurement and Statistical Problems......Page 45
Conceptual Problems......Page 46
Theory......Page 48
Exogenous Sunk Cost......Page 49
Endogenous Sunk Costs......Page 51
Empirical Research......Page 53
PROBLEMS......Page 54
THREE Industry Models of Market Power......Page 56
STRUCTURAL APPROACH......Page 57
Interpretations of λ......Page 59
Identification......Page 61
Estimation and Hypothesis Tests......Page 64
Taxes: An Application......Page 65
Comparative Statics......Page 67
Hall’s Reduced-Form Approach......Page 69
Structural Oligopsony Model......Page 72
HOW WELL THESE METHODS WORK......Page 73
Oligopoly Simulations......Page 74
Structural Model......Page 76
Hall’s Reduced-Form Model......Page 79
Empirical Comparisons......Page 83
SUMMARY......Page 84
PROBLEMS......Page 86
FOUR Differentiated-Product Structural Models......Page 88
RESIDUAL DEMAND......Page 89
Multilevel Demand Specifications......Page 91
An Almost Ideal Demand System Example......Page 92
Identification......Page 94
Instruments......Page 95
Hypothesis Tests......Page 96
Linear Random Utility Model......Page 97
Estimating the Random-Parameter Model......Page 100
Market Power......Page 103
PROBLEMS......Page 105
FIVE Strategic Reasons for a Dynamic Estimation Model......Page 107
SUPERGAMES......Page 108
EMPIRICAL IMPLICATIONS......Page 112
MODELS OF REPEATED GAMES WITH TRIGGER STRATEGIES......Page 113
MODELS OF REPEATED GAMES WITH CONTINUOUS STRATEGIES......Page 118
SUMMARY......Page 122
PROBLEMS......Page 123
SIX Dynamic Games Involving Economic Fundamentals......Page 127
Production Fundamentals......Page 128
Demand Fundamentals......Page 130
A DYNAMIC GAME WITH A QUASI-FIXED INPUT......Page 131
OPEN-LOOP RULES......Page 135
Time Consistency of Open-Loop Rules......Page 136
Different Approaches to Obtaining Necessary Conditions......Page 137
SUBGAME PERFECTION AND MARKOV STRATEGIES......Page 139
DIFFERENTIABLE MARKOV PERFECT STRATEGIES......Page 141
A STICKY PRICE MODEL......Page 142
Multiplicity of Equilibria......Page 144
COMPARING OPEN-LOOP AND MARKOV EQUILIBRIA......Page 146
MARKOV PERFECT EQUILIBRIA AND CONJECTURAL VARIATIONS......Page 149
EMPIRICAL IMPLICATIONS......Page 150
DIFFERENT WAYS TO INTERPRET OPEN-LOOP EQUILIBRIUM......Page 154
SUMMARY......Page 155
PROBLEMS......Page 156
OVERVIEW OF TWO EXAMPLES......Page 161
THE STICKY PRICE MODEL......Page 163
The Dynamic Programming Equation......Page 165
The Euler Equation for a Special Case......Page 166
Other Approaches to Deriving the Euler Equation......Page 167
The Estimation Model......Page 168
The General Model......Page 169
An Additional Assumption about Demand......Page 170
Random Demand Shifters......Page 171
Estimation Using the Dynamic Programming Equation......Page 172
A Related Dynamic Oligopoly Model......Page 176
A DYNAMIC MODEL WITH ADVERTISING......Page 177
The Open-Loop Equilibrium to the Advertising Model......Page 178
The Markov Perfect Equilibrium to the Advertising Model......Page 180
The Hybrid Model......Page 182
ESTIMATION OF MARKOV PERFECT EQUILIBRIA......Page 184
SUMMARY......Page 192
PROBLEMS......Page 193
EIGHT Estimation of Market Power Using a Linear-Quadratic Model......Page 195
ASSUMPTIONS AND DEFINITIONS......Page 196
THE STATIC ANALOG......Page 197
THE DYNAMIC MODEL......Page 198
IMPLICATIONS OF THE LINEAR-QUADRATIC STRUCTURE......Page 199
The Recursive Structure of the Solution......Page 200
The Principle of Certainty Equivalence......Page 201
PROPERTIES OF THE EQUILIBRIA......Page 203
EQUILIBRIUM CONDITIONS USED FOR ESTIMATION......Page 206
Necessary Conditions for the Open-Loop Equilibrium......Page 207
Necessary Conditions for the Markov Perfect Equilibrium......Page 209
Additional Restrictions and Testing......Page 211
Coffee......Page 212
Rice......Page 213
Classical Estimates......Page 214
Bayesian Estimates......Page 216
Simulations......Page 218
SUMMARY......Page 219
APPENDIX 8A: DERIVATION OF RESTRICTIONS......Page 220
The Markov Perfect Restrictions......Page 221
PROBLEMS......Page 222
NINE Estimating Strategies: Theory......Page 225
RELATED STUDIES......Page 227
MIXED STRATEGIES......Page 231
The Strategies and the Game......Page 233
Econometric Adjustments for the Game......Page 234
THE ESTIMATION MODEL......Page 235
Classical Maximum Entropy Formulation for the Multinomial Problem......Page 236
Incorporating the Sample Information......Page 237
Incorporating the Nonsample, Game-Theoretic Information......Page 241
The GME-Nash Estimator: Hypothesis Testing......Page 243
SUMMARY......Page 246
APPENDIX 9A: PROOF THAT THE GME-NASH ESTIMATOR IS CONSISTENT......Page 247
PROBLEMS......Page 248
AIRLINES GAME......Page 249
Airlines Model......Page 250
Estimates......Page 251
Comparing Estimators......Page 255
Hypothesis Tests......Page 257
Sampling and Sensitivity Experiments......Page 259
Airlines Summary......Page 260
Cola Model......Page 261
Estimates......Page 263
Basic Statistics and Tests of the Cola Market......Page 266
Effects of the Exogenous Variables......Page 271
SUMMARY......Page 273
APPENDIX 10A: EXPECTED LERNER MEASURE......Page 274
ESTIMATING ILL-POSED PROBLEMS......Page 277
Information......Page 278
Maximum Entropy Principle......Page 279
GENERALIZED MAXIMUM ENTROPY MODEL......Page 280
Extensions......Page 283
Inference and Diagnostics......Page 284
Empirical Examples for the Linear Model......Page 285
Maximum Likelihood Approach......Page 287
GME Approach......Page 290
EMPIRICAL LIKELIHOOD, GENERALIZED METHOD OF MOMENTS, AND BAYESIAN METHOD OF MOMENTS MODELS......Page 293
Empirical Likelihood Formulation......Page 294
Discussion......Page 299
Bayesian Method of Moments......Page 300
SUMMARY......Page 301
Bibliography......Page 303
Answers......Page 317
Index......Page 339