NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Identification and Estimation of Discrete Games of Complete Information

Patrick Bajari, Han Hong, Stephen Ryan

NBER Technical Working Paper No. 301
Issued in October 2004
NBER Program(s):   TWP

We discuss the identification and estimation of discrete games of complete information. Following Bresnahan and Reiss (1990, 1991), a discrete game is a generalization of a standard discrete choice model where utility depends on the actions of other players. Using recent algorithms to compute all of the Nash equilibria to a game, we propose simulation-based estimators for static, discrete games. With appropriate exclusion restrictions about how covariates enter into payoffs and influence equilibrium selection, the model is identified with only weak parametric assumptions. Monte Carlo evidence demonstrates that the estimator can perform well in moderately-sized samples. As an application, we study the strategic decision of firms in spatially-separated markets to establish a presence on the Internet.

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Document Object Identifier (DOI): 10.3386/t0301

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