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Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model

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  • Ariel Pakes
  • Paul McGuire

Abstract

In this article we develop and illustrate a simple algorithm for computing Markov-perfect Nash equilibria. The advantage of the Markov-perfect framework is that it is flexible enough to reproduce important aspects of reality in a variety of market settings. As a result, we hope that our article and (perhaps improved) versions of the associated algorithms will eventually be a part of a tool kit that allows researchers to go back and forth between the implications of economic theory and the characteristics of alternative datasets.

Suggested Citation

  • Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
    • Handle: RePEc:rje:randje:v:25:y:1994:i:winter:p:555-589
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