Multiplicity of equilibria and information structures in empirical games: challenges and prospects

Abstract

Empirical models of strategic games are central to much analysis in marketing and economics. However, two challenges in applying these models to real world data are that such models often admit multiple equilibria and that they require strong informational assumptions. The first implies that the model does not make unique predictions about the data, and the second implies that results may be driven by strong a priori assumptions about the informational setup. This article summarizes recent work that seeks to address both issues and suggests some avenues for future research.

Estimating Dynamic Games of Oligopolistic Competition: An Experimental Investigation

“…Typical empirical applications (especially those with asymmetric firms) might allow for many potential MPE. 6 For suggestions on how to deal with the latter, see Borkovsky et al (2014). 7 Our paper focuses on the former, and the environment is constructed to have just one symmetric MPE.…”

Markets for ideas: prize structure, entry limits, and the design of ideation contests

“…I suggest an empirical model of contests with multiple prizes, participant heterogeneity, and the possibility of selection into contests based on unobserved costs of effort. Furthermore, I address a recent call in literature to allow for more flexibility in the information structures of empirical games (Borkovsky et al 2015) and derive contest outcome predictions that are robust to different informational assumptions.…”

Equilibrium uniqueness in entry games with private information

“…A common challenge is the existence of multiple equilibria. Under multiplicity, the model may not yield a unique prediction to the applied question, hindering policy analysis (Berry and Tamer, 2006; Borkovsky et al., 2015). Computing multiple equilibria may also prove challenging when using numerical methods, which may limit the researcher's ability to gain a complete understanding of the impacts of a policy of interest (Iskhakov et al., 2016).…”