Working Paper: CEPR ID: DP14342
Authors: Martin Pesendorfer; Taisuke Otsu; Yuya Sasaki; Yuya Takahashi
Abstract: We propose a multiplicity-robust estimation method for (static or dynamic) games. The method allows for distinct behaviors and strategies across markets by treating market specific behaviors as correlated latent variables, with their conditional probability measure treated as an infinite-dimensional nuisance parameter. Instead of solving the intermediate problem which requires optimization over the infinite dimensional set, we consider the equivalent dual problem which entails optimization over only a finite-dimensional Euclidean space. This property allows for a practically feasible characterization of the identified region for the structural parameters. We apply the estimation method to newspaper market previously studied in Gentzkow et al. (2014) to characterize the identified region of marginal costs.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multiplicity-robust estimation method (C30) | identification and estimation of structural parameters (C51) |
| correlated latent variables (C39) | accommodation of equilibrium multiplicity and unobserved market heterogeneity (D52) |
| distinct behaviors and strategies (L20) | impact on estimation of structural parameters (C51) |
| identified region of marginal costs (D40) | estimated to be between 84% and 94% of revenues (H27) |
| statistical tests (C12) | reject null hypothesis of identical market share distributions (D39) |