Identification and Estimation of a Discrete Game of Complete Information

We discuss the identification and estimation of discrete games of complete information. Following Bresnahan and Reiss (1990,1991), a discrete game is a generalization of a standard discrete choice model where utility depends on the actions of other players. Using recent algorithms to compute all of...

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Bibliographic Details
Published in:Econometrica 2010-09, Vol.78 (5), p.1529-1568
Main Authors: Bajari, Patrick, Hong, Han, Ryan, Stephen P.
Format: Article
Language:English
Subjects:
Algorithms
Applications
Auctions
Bidding
Complete information
discrete games
Distribution theory
Economic models
Economic theory
Equilibrium models
equilibrium selection mechanism
Estimating techniques
Estimation
Estimation methods
Estimators
Exact sciences and technology
Game theory
Games
Games of strategy
importance sampling
Information economics
Insurance, economics, finance
Markups
Mathematics
mixed strategies
Mixed strategy
Monte Carlo simulation
Nash equilibrium
Normal form games
Numerical analysis
Numerical analysis. Scientific computation
Numerical methods in probability and statistics
Parametric inference
Probability and statistics
Sciences and techniques of general use
Statistics
Studies
Citations: Items that cite this one
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Summary:We discuss the identification and estimation of discrete games of complete information. Following Bresnahan and Reiss (1990,1991), a discrete game is a generalization of a standard discrete choice model where utility depends on the actions of other players. Using recent algorithms to compute all of the Nash equilibria to a game, we propose simulation-based estimators for static, discrete games. We demonstrate that the model is identified under weak functional form assumptions using exclusion restrictions and an identification at infinity approach. Monte Carlo evidence demonstrates that the estimator can perform well in moderately sized samples. As an application, we study entry decisions by construction contractors to bid on highway projects in California. We find that an equilibrium is more likely to be observed if it maximizes joint profits, has a higher Nash product, uses mixed strategies, and is not Pareto dominated by another equilibrium.
ISSN:0012-9682
1468-0262
DOI:10.3982/ECTA5434