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Estimating Dynamic Models of Imperfect Competition

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Author Info
Patrick Bajari
C. Lanier Benkard
Jonathan Levin

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Abstract

We describe a two-step algorithm for estimating dynamic games under the assumption that behavior is consistent with Markov Perfect Equilibrium. In the first step, the policy functions and the law of motion for the state variables are estimated. In the second step, the remaining structural parameters are estimated using the optimality conditions for equilibrium. The second step estimator is a simple simulated minimum distance estimator. The algorithm applies to a broad class of models, including I.O. models with both discrete and continuous controls such as the Ericson and Pakes (1995) model. We test the algorithm on a class of dynamic discrete choice models with normally distributed errors, and a class of dynamic oligopoly models similar to that of Pakes and McGuire (1994).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10450.

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Date of creation: Apr 2004
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Handle: RePEc:nbr:nberwo:10450

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L0 - Industrial Organization - - General
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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