Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition

Peter Arcidiacono, Patrick Bayer, Jason R. Blevins, Paul B. Ellickson

NBER Working Paper No. 18449
Issued in October 2012
NBER Program(s):   IO   TWP

This paper develops a dynamic model of retail competition and uses it to study the impact of the expansion of a new national competitor on the structure of urban markets. In order to accommodate substantial heterogeneity (both observed and unobserved) across agents and markets, the paper first develops a general framework for estimating and solving dynamic discrete choice models in continuous time that is computationally light and readily applicable to dynamic games. In the proposed framework, players face a standard dynamic discrete choice problem at decision times that occur stochastically. The resulting stochastic-sequential structure naturally admits the use of CCP methods for estimation and makes it possible to compute counterfactual simulations for relatively high-dimensional games. The model and method are applied to the retail grocery industry, into which Wal-Mart began rapidly expanding in the early 1990s, eventually attaining a dominant position. We find that Wal-Mart’s expansion into groceries came mostly at the expense of the large incumbent supermarket chains, rather than the single-store outlets that bore the brunt of its earlier conquest of the broader general merchandise sector. Instead, we find that independent grocers actually thrive when Wal-Mart enters, leading to an overall reduction in market concentration. These competitive effects are strongest in larger markets and those into which Wal-Mart expanded most rapidly, suggesting a diminishing role of scale and a greater emphasis on differentiation in this previously mature industry.

download in pdf format
   (844 K)

email paper

This paper was revised on February 6, 2015

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18449

Published: Peter Arcidiacono & Patrick Bayer & Jason R. Blevins & Paul B. Ellickson, 2016. "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," The Review of Economic Studies, vol 83(3), pages 889-931. citation courtesy of

Users who downloaded this paper also downloaded* these:
Rosen and Small w0319 Applied Welfare Economics with Discrete Choice Models
Fang and Wang w16438 Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions
Heckman and Navarro t0316 Dynamic Discrete Choice and Dynamic Treatment Effects
Cooper, Haltiwanger, and Willis w15675 Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application
Pakes, Ostrovsky, and Berry w10506 Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples)
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us