Empirical Framework for Cournot Oligopoly with Private Information

48 Pages Posted: 15 Nov 2019 Last revised: 1 Sep 2021

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Federico Zincenko

University of Nebraska at Lincoln - College of Business Administration

Date Written: November 6, 2019

Abstract

We propose an empirical framework for Cournot oligopoly with private information about costs. First, considering a linear demand with a random intercept, we characterize the Bayesian Cournot-Nash equilibrium and determine its testable implications. Then we establish nonparametric identification of the joint distribution of demand and market-specific technology shock, and then firm-specific cost distributions. Following the identification steps, we propose a likelihood-based estimation method, and for illustration, apply it to the global upstream market for crude oil. We also extend the baseline model to include either conduct parameters, nonlinear demand, or selective entry.

Keywords: Cournot oligopoly, private information, variable costs, identification

JEL Classification: C57, D22, D43, L13

Suggested Citation

Aryal, Gaurab and Zincenko, Federico, Empirical Framework for Cournot Oligopoly with Private Information (November 6, 2019). Available at SSRN: https://ssrn.com/abstract=3482154 or http://dx.doi.org/10.2139/ssrn.3482154

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Federico Zincenko

University of Nebraska at Lincoln - College of Business Administration ( email )

1240 R Street
P.O. Box 880405
Lincoln, NE 68588-0405
United States

HOME PAGE: http://https://sites.google.com/site/fzincenk

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