Working Paper: NBER ID: w19307
Authors: C. Lanier Benkard; Przemyslaw Jeziorski; Gabriel Y. Weintraub
Abstract: This paper explores the application of oblivious equilibrium to concentrated industries. We define an extended notion of oblivious equilibrium that we call partially oblivious equilibrium (POE) that allows for there to be a set of "dominant firms'', whose firm states are always monitored by every other firm in the market. We perform computational experiments that show that POE are often close to MPE in concentrated industries with characteristics similar to real world industries even when OE are not. We derive error bounds for evaluating the performance of POE when MPE cannot be computed. Finally, we demonstrate an important trade-off facing empirical researchers between implementing an equilibrium concept that is computationally light in a richer economic model, and implementing MPE in a simpler one.
Keywords: Oblivious Equilibrium; Concentrated Industries; Dynamic Oligopoly Models
JEL Codes: L0; L1; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| partially oblivious equilibrium (POE) (D51) | Markov Perfect Equilibria (MPE) (C73) |
| partially oblivious equilibrium (POE) (D51) | oblivious equilibrium (OE) (D50) |
| turnover rates among leading firms (M51) | partially oblivious equilibrium (POE) (D51) |
| partially oblivious equilibrium (POE) (D51) | investment behavior of firms (D22) |
| partially oblivious equilibrium (POE) (D51) | consumer surplus (D46) |
| partially oblivious equilibrium (POE) (D51) | producer surplus (D22) |
| dominant firms (L10) | partially oblivious equilibrium (POE) (D51) |