Wednesday, December 23, 2009
Posted by D. Daniel Sokol
Andrés Carvajal (CRETA and Department of Economics, University of Warwick) and John Quah (Department of Economics, Oxford University, Oxford) provide A Nonparametric Analysis of the Cournot Model.
ABSTRACT: An observer makes a number of observations of an industry producing a homoge- neous good. Each observation consists of the market price, the output of individual firms and perhaps information on each firm's production cost. We provide vari- ous tests (typically, linear programs) with which the observer can determine if the data set is consistent with the hypothesis that firms in this industry are playing a Cournot game at each observation. When cost information is wholly or partially unavailable, these tests could potentially be used to derive cost information on the firms. This paper is a contribution to the literature that aims to characterize (in various contexts) the restrictions that a data set must satisfy for it to be consis- tent with Nash outcomes in a game. It is also inspired by the seminal result of Afriat (and the subsequent literature) which addresses similar issues in the context of consumer demand, though! one important technical difference from most of these results is that the objective functions of firms in a Cournot game are not necessarily quasiconcave.