Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)

Innovation and the dynamics and evolution of industries: Progress and challenges

“…While in models such as Jovanovich 1984 the current size distribution is dependent on the initial size, in these models the dependence of the conditional distribution of current size-conditional on a few past sizes-on the initial size disappears as the age of firms increases. In particular, these developments have allowed the structural estimation of dynamic games concerning entry, a key element in industrial dynamics (see Pakes et al, 2006;Bajari et al, 2006 for two examples).…”

Does the fourth entrant make any difference?

“…For a review on strategic models of entry deterrence, see Wilson (1992). 9 Aguirregabiria and Mira (2007), Bajari et al (2007), Pakes et al (2007), and Pesendorfer and Schmidt Dengler (2003) provide simplifications along this line in order to alleviate the computational burden of estimating a discrete dynamic game, but the data requirement is similar.…”

“…These entry costs play a pivotal role in determining market structure and industry evolution. The distribution of entry cost is usually recovered from the distribution of entry decisions, conditioning on some market-level attributes determining post-entry payoffs (Aguirregabiria and Mira, 2007;Bajari et al, 2007;Pakes et al, 2007;Pesendorfer and Schmidt Dengler, 2003). These models, which are more general and realistic compared to the static entry models, are however much more complicated to estimate and require data on the identities of entrants and their timing of entry (Collard-Wexler, 2008;Ryan, 2009;Dunne et al, 2009).…”

Predatory reputation in US airline markets

“…An implicit assumption in obtaining the path of beliefs is that there is no outside shock to these beliefs such as a change of antitrust policy. 10 It is only very recently that methods for estimating relatively simple dynamic games of imperfect information are introduced such as Pakes, Ostrovsky, and Berry (2004), Aguirregabiria and Mira (2005), and Kim (2006). 11 When learning and entry are combined, the link need not be limited to the same market.…”