!

"#$%&"' )*+

),- ./$&01%#$.0/

The objectives of the fiist thiee lectuies aie to
(a) Intiouuce you to the stiuctuial way of thinking about empiiical analysis.
(b) Intiouuce you to issues of maiket competition anu maiket powei
(c) Intiouuce you to static mouels with homogenous piouucts: which foims the
natuial point of uepaituie when you want to estimate moie complicateu
uemanu systems with heteiogeneous piouucts anu bianus.

At the centei of these issues is the ieality of uata (non) availability. The
funuamental issue in empiiical estimation is that uata aie nevei available at the
level anu foi vaiiables that woulu fully "iuentify" youi mouel. The ciux of
innovative empiiical ieseaich is then to finu ways aiounu the non-availability of
uata. This may neeu you to aggiegate mouels to match aggiegate uata.
Alteinatively, you may have to play aiounu with youi mathematical mouels so
that they yielu ielationships that aie measuiable with the uata you have.

To begin with, let us biiefly sketch the most basic mouel we may use foi looking
at maiket competition.

),) $2"0&34 5 6&."7 '8"$#2

Let us consiuei an inuustiy with 2 fiims piouucing output
1
q anu
2
q .

Assumptions:
1. Equal constant Naiginal Cost: c .
2. 29:9;<=9>? 9>@A>@. Theiefoie,

2 1
q q Q + = .
S. Naiket Bemanu: ) (Q P

Fiim s i' piofit:
i i i
cq q Q P ! = " ) (






1. !"#$%"& ()*+: Fiims simultaneously choose output.

Fiist 0iuei Conuitions:

0 ) ( = !
"
"
+ =
"
# "
c
Q
P
q Q P
q
i
i
i


MR! MC = 0
{ }



Q
P
q c Q P
i
!
!
" = " # ) ( ,

Sum ovei the fiims:
( )
Q
P
Q c P
!
!
" = " 2 ,
!
!
"
#
$
$
%
&
'
' (
=
!
"
#
$
%
&
(
)
Q
P
P
Q
P
c P
2
1
,

Let
P
Q
ln
ln
!
!
" # $ .


Now,
!
1
2
1
=
"
#
$
%
&
'
(
P
c P
. (1)

The left hanu siue of the equation is the piice uistoition, that is the ueviation
fiom maiginal cost. This is also calleu the !"#$"# &$'"()


With $ iuentical fiims, analogously, we get


!
1 1
n P
c P
=
"
#
$
%
&
'
(
(2)

*+,-#-./0 &+,0-./1-2$3 45 $6+7"# 28 8-#+5 9$: ;2 6,< 1=" 0"#$"# -$'"( 8/005)


Can we then, look at the numbei of fiims in the maiket anu infei maiket
competitiveness. While some ieseaicheis uo that (uata is often easiei to get on
this), this is a stiategy fiaught with uangei. Can we say Niciosoft behaveu
monopolistically because it was the only fiim in the inuustiy. Anu can we say
that the potato maiket is always competitive, because theie aie many selleis of
oil.

In both cases, the numbei of selleis is ueceptive. Theoiy pieuicts that when
theie aie many selleis who can oiganize themselves, they can behave as a
monopoly (caitels). This is obviously moie likely when the numbei of selleis is
not too laige. 0n the othei hanu, the sole fiim in the inuustiy may also behave
competitively, to uetei entiy, in contestable maikets.

0ne of favoieu empiiical stiategy is to ask whethei the actual behavioi in the
inuustiy is just like it woulu be -8 1=" -$'651#>< 1="2#"1-./00> =/' $ $6+7"# 28 8-#+5.

Bence in equation (2), if we estimate anu finu that the piice cost maigins in the
inuustiy aie close to
1
n
1
!
, then the fiims in the inuustiy aie behaving like they
woulu in a competitive inuustiy with $ fiims. Bowevei, if we estimate that the
piice cost maigins aie
1
!
, then, they aie behaving like they woulu, in an inuustiy
that is monopolistic. Bence they show caitel type behavioi.

It is impoitant to biing up two uata issues heie. Fiist, maiginal cost uata is often
impossible to get foi fiims. It may be possible to infei what the vaiious inputs
aie anu what is theii piice. Seconu, it may only be possible to get inuustiy level
piice anu quantity uata. Inueeu, inuustiy iepoits iepoit only that. So, in the
mouel, we have implicitly aggiegateu to the inuustiy level (anu assumeu,
peihaps eiioneously, iuentical fiims to make oui life simple; but we will ielax
this).

It can be seen that
1
!
, the inveise elasticity of uemanu, is a ciitical object in this
analysis. This can only be obtaineu by estimation. Bence uemanu estimation
foims a ciitical pait of inuustiial oiganization.



A siue note: what about Beitianu mouels wheie fiims choose piice.

2. ,+$&$)%- ()*+3 Fiims simultaneously choose piices.




If
j i
P P > , then 0 =
i
q
If
j i
P P = , then ) (
2
1
i i
P Q q =
If
j i
P P < , then ) (
i i
P Q q =

Nash Equilibiium of this game: c P P
j i
= =
! 0 =
!
P
c P
!

In these mouels, theiefoie, we neeu to intiouuce othei complexities: piouuct
uiffeientiation, capacity constiaints oi iepeateu games foi the mouel to have any
use foi empiiical woik.














),B '@C>D@>CEF 5AAC9EDG

The neeu foi estimating anu inteipieting ielationships in inuustiy coiiectly has
leu to the emeigence of what is calleu the "New empiiical Inuustiial
0iganization". (NEI0). Thiee biief points about stiuctuial estimation at this
point:
(a) The staiting point is always a mouel of the inuustiyfiim.
(b) All paiameteis estimateu aie fiom the mouel anu hence immeuiately
inteipietable
(c) Au-hoc paiameteis in stiuctuial mouels aie fiowneu out anu often leau to
next geneiation of mouels.

This couise can also be inteipieteu as an intiouuctoiy couise in stiuctuial
estimation. Bowevei, befoie we begin uiscussing moie complicateu mouels of
heteiogeneous goous anu bianus, we will stait fiist, by looking at a scenaiio to
motivate how looking at the theoiy can be ciucial foi empiiical woik.

),H .=I<CCJ=; KECL<@ 6<GEMJ9C4 /9 D9?@ NE@E E=N 9=FO .=N>?@CO PCJD< E=N
Q>E=@J@O, R6C<?=EGE= )STBU

Let the maiket uemanu cuive be given by
) , ( Y P D Q = (S)
wheie Y aie exogenous uemanu shifteis.

Let the maiginal cost cuive be given by ) , ( ! Q c wheie ! is a vectoi of cost
shifteis.

The Peifectly Competitive supply cuive is given by

) , ( ! Q c P =

The Nonopoly Supply cuive is given by

) , ( . ! Q c Q
Q
P
P =
"
"
+ (4)

Consiuei the following Q0ASI S0PPLY C0RvE
Q
Q
P
Q c P . ) , (
!
!
" = # $ (S)

If 0 = ! , then peifectly competitive supply cuive
If 1 = ! , then Nonopoly

Simultaneous Equation System: Equations (S) anu (S)

! J? =9@ JN<=@JIJ<N,

e.g. Y P Q
2 1 0
! ! ! + + =
! " " "
2 1 0
+ + = Q c
0bseiveu uata: ! , , , Y Q P . We can't obseive c .

Quasi Supply Cuive:
P = !
0
+!
1
Q+!
2
" !#
1
$
1
Q

!
! "
#
$
" "
2
1
1 0
+
%
%
&
'
(
(
)
*
+ + = Q P

Beie
Enuogenous vaiiables: Q P,
Exogenous vaiiables: Y , !


Y Q
!
!
"
#
$
$
%
&
' '
+
!
!
"
#
$
$
%
&
' '
+
!
!
"
#
$
$
%
&
' '
+
=
1
1 1
2
1
1 1
2 1
1
1 1
0 1 0
1 1 1
(
)
* (
(
+
(
)
* (
* (
(
)
* (
* ( (


Notice that
1 0
,! ! anu
2
! aie iuentifieu if theie is vaiiation in ! . Similaily
) ( ,
1
1 0
!
"
# # $ anu
2
! aie iuentifieu by vaiiation in Y. Bowevei, we cannot iuentify
1
! anu ! sepaiately.











To explain why we cannot, let us explain this pictoiially:


7J;>C< B
To begin, notice that we may have some iuea of the uemanu cuive (thiough the
fiist step we mentioneu above), but we uo not know eithei if its monopoly oi
competition, noi uo we know the maiginal cost cuive.

The pioblem of estimation is the following: Look at the point E1. It can be
geneiateu in monopoly when the maiginal cost cuive is NC
m
. Alteinatively it can
be geneiateu in peifect competition by the maiginal cost cuive NC
c
. Since we
uon't know which is the coiiect cost cuive, even with the same uemanu cuive,
we cannot tell fiom uata if the maiket is competitive oi monopolistic.

Now consiuei if theie is some vaiiation in maikets that can thiow some light on
the issue. A paiallel shift of uemanu cuive iuentify supply cuive anu vice veisa
(Recall simultaneous equation moueling of supply anu uemanu). To iuentify the
maiginal cost cuive (that we uon't know) we may think that paiallel shifts of
uemanu cuive will help (that maikets that uiffei by shifting uemanu cuive will
help us extiact the maiginal cost cuive). But this is not the case.

Consiuei anothei maiket wheie the uemanu cuive is shifteu to the iight
(uemanu shiftei: income, tastes etc.): B2 . The maiginal ievenue cuive will also
move the iight (because that is ueiiveu fiom the uemanu cuive): NR2. Anu let us
say the new equilibiium point is E2. But note again, that E2 can again be an
outcome of monopoly oi peifect competition (with no change in NC cuives). So
this vaiiation will not help us ueciue what is the maiket stiuctuie in this
inuustiy.

5??J;=:<=@ Q><?@J9= )4 VGE@ JI W< E??>:< @GE@ KEC;J=EF #9?@ J? D9=?@E=@X

What we neeu is a vaiiation that iotates the uemanu cuive (the shifting out is
optional).

7J;>C< H
In Figuie S, notice that as the uemanu cuive iotates, the new point of
equilibiium is ES unuei monopoly. Bowevei, it stays at E1 unuei peifect
competition. Bence this vaiiation is able to sepaiate out the two maiket
stiuctuies.

Bence @9 JN<=@JIO ! Y we neeu anothei exogenous vaiiable that changes the
uemanu elasticity. Foi example, let the uemanu cuive be given by

Z Z P Y P Q
4 3 2 1 0
) . ( ! ! ! ! ! + + + + =
Then the Quasi Supply cuive will be

( )
Q
Z
Q P
3 1
2 1 0
1
! !
" # $ $ $
+
% + + =

Theiefoie we will estimate
*
2 1 0
Q Q P ! " # # # $ + + =
wheie
( )
Q
Z
Q
3 1
*
1
! ! +
=




In the above analysis, we stuck in ! without ieally tiying to inteipiet it.

Recall 0 = ! is peifectly competitive behavioui anu 1 = ! is joint piofit
maximizing behavioui.

In oui eailiei ueiivations, ! was equal to
n
1
. This may not always be the case.
Let us give some moie theoietical unueipinning to ! .

),+, .=I<CCJ=; KECL<@ 6<GEMJ9C4 &9F< 9I #9=Z<D@>CEF [ECJE@J9= R5AAF<\E>:
)STBU

Let maiket uemanu be given by ) , ( Y P D Q =
Let total cost be given by ) , ( !
i i i
q TC TC =
Recall that then, fiim -?5 maximizing pioblem is to choose
i
q such that

( ) [ ] ) , ( : , max Y P D Q q TC pq
i i i
= ! "

The F0C is

0 =
!
!
"
!
!
!
!
+
i
i
i
i
q
TC
q
Q
Q
P
q p (6)

Why is (6) uiffeient fiom the fiist F0C foi couinot game. Note that the teim
i
q
Q
!
!

is actually
i
j
q
q
!
!
+ 1
wheie
i
j
q
q
!
!
iepiesents conjectuial vaiiation, i.e. what fiim
i

expects fiim
j
to uo when it changes its output. In the eailiei F0C, we assumeu
Conjectuial vaiiation is u, so
i
q
Q
!
!
is 1.
(Note that if the conjectuial vaiiation is 1, then theie will be collusion. Each fiim
will iealize that it can only iaise maiket output by incieasing its quantity anu not
inciease maiket shaie. This will leau to a caitel solution)

Benote
Q
q
q
Q
i
i
i
!
!
= " . Then
i
i i
q
TC
p
!
!
=
"
#
$
%
&
'
(
)
*
1

Let us assume that theie is no conjectuial vaiiation. Then,

i i
s = !

wheie
Q
q
s
i
i
= , i.e. the maiket shaie!

Then (6) can iewiitten as

i
i i
q
TC s
p
!
!
=
"
#
$
%
&
'
(
)
1 (6')

If we have inuustiy level ouput anu piices, this equation will not be that useful.
So we will have to aggiegate ovei the fiims.

Note that
i
i
n
i
i
n
i
i
i
q
TC
s
s
p s
!
!
=
"
#
$
%
&
'
(
)
*
+
,
-
.
/ /
= = 1 1
1
0
(7)

The Right Banu Siue of (7) is the change in Naiginal Cost at the inuustiy level.

(7) !

i
i
n
i
i
i
q
TC
s
s
p
!
!
=
"
"
#
$
%
%
&
'
(
)
)
=1
2
1
*
(7')
Theiefoie
!
=
=
n
i
i
s
1
2
"

Theiefoie
[ ] 1 , 0 ! "
.
!
is also calleu the 2"&7./152! ./1"] (piopoitional to
the Leinei Inuex anu in special cases(.) equal to it).

Incieases in the Beifinuahl inuex geneially inuicate a ueciease in competition
anu an inciease of maiket powei, wheieas uecieases inuicate the opposite

EXTRA ASS0NPTI0N:
Let the cost function of the fiims satisfy

) ( ) ( ) , ( ! ! !
i i i i
G C q q TC + =
(8)

This assumption is usually implicit in aggiegate piouuction oi consumption
stuuy anu these functions aie calleu uoiman polai foim type. They allow
uiffeient fiims to have uiffeient cost cuives but the cuives aie all lineai anu
paiallel.

(8) anu (7') !

) ( 1
2
!
"
C
s
p
i
=
#
#
$
%
&
&
'
(
)
*
(9)


Example:
Bemanu: Cobb Bouglas

Y p a Q ln ln ln ! " + # = (1u)
wheie (
!
"
1
= ).
Inuustiy Total Cost: uoiman Polai Foim
!! !
+ =
i j
i i j i ij
w b Q w w b TC
2
1
) ( (11)
wheie
i
w aie cost of inputs (capital, laboui etc)
(If you uon't have cost uata, then Shephaiu's lemma will give you factoi input
uemanus)


Quasi Supply Cuive (given in 9) implies

!
"
#
$
%
&
'
!
!
"
#
$
$
%
&
=
(
)
*
1
) (
2
1
j i ij
w w b
p (12)


If we use only equation (12) foi estimation, we will iuentify
!
"
#
$
%
&
'
(
)
1
ij
b
.
If we use equation (1u) anu (12), we will still not be able to iuentify
ij
b anu ! .

If we use (11) anu (12), we can iuentify
ij
b anu
!
"
.which is the Leinei Inuex.
If we use (1u), (11) anu (12), we can iuentify
ij
b , ! anu ! .

0ne can fuithei give stiuctuie by specifying what the maiket stiuctuie can be
moveu by.
i
i
i
w A A
!
+ =
0
" .


),^ #9FF>?J9=4 &<A<E@<N .=@<CED@J9= E=N K>F@J:ECL<@ #9=@ED@

What uoes the extent of collusion uepenu on. In paiticulai, if the same fiims
inteiact in many maiket iepeateuly, uoes this mattei. This question has been
theoietically auuiesseu by Beinheim anu Whinston (@/$' ABBC) wheie they
show that multi maiket contact may leau to collusive equilibiia in a iepeateu
game setting. Let the collusive piofit be
*
! , let the static piofit fiom ueviating
fiom the collusive stiategy be
d
! anu let the punishment fiom ueviating be
P
!
foi eteinity. The No cheating conuition stipulates that
!
*
1"!
# !
d
+
!
1"!
!
P
.
With multiple maiket inteiaction in D maikets, this conuition becomes
!
*
1"!
k
#
$ !
d
+
!
1"!
!
P
k
#

As can be seen, theie is a wiuei iange of ! that can suppoit collusion.


9E/#D"# /$' @200"#< @/$' ABBF:3 G"" H/$'261

This papei empiiically estimates the uegiee of competition in the uuopolistic
maiket setting of the cellulai telephone inuustiy. The fiist goal is to auuiess the
following question: Boes the entiy of a seconu opeiatoi leau to maiket piices in
line with two non-coopeiative fiims, oi uo fiims tacitly colluue.
Seconu, we shall attempt to explain the uegiee of collusion in a given maiket in
teims of oiganizational, maiket, anu iegulatoiy factois. In paiticulai, we focus
on two main chaiacteiistics: multimaiket contact anu cioss-owneiship

Empiiical test whethei uuopoly iegulatoiy system pievailing in the 0S cellulai
telephone inuustiy (1984-88) leu to collusive conuuct. Phase of Nonopoly was
followeu by Buopoly (the numbei of licenses pei iegion was iestiicteu to 2).

Let t uenote time anu s uenote a paiticulai iegional maiket.

Naiket Bemanu:
Time ess Bu Pop Q P
ts ts ts ts 4 3 2 1 0
) sin log(# log log ! ! ! ! ! + + + + =
(1S)

Naiginal Cost:
... Re
5 4 3 2 1 0
+ + + + + + =
ts ts ts ts ts ts
nt Wages te Intermedia Elect Q MC ! ! ! ! ! !

Quasi Supply Cuive:
1
! "
ts ts ts
MC P # = (14)

Note that ! is not taken as a constant.

A ciiticism of stiuctuial woik coulu be that the imposition of the wiong mouel
means that the whole exeicise is mis-specifieu.

I5-$; /.16/0 #";60/1-2$ -$82#+/1-2$ 12 .=".D +2'"05

Fiist step to check if this equation is estimateu: whethei it iuentifies coiiectly
the monopoly iegionpeiiou.

Specify ( )
ts
D
ts
M
ts
DM DM ! + = 1 " " " wheie the uummy DM takes the value 1 if
it's the monopoly peiiou in a paiticulai iegional maiket s. Note that 1 = !
iuentifies Nonopoly. Estimates of ) 17 . 0 : . . ( 079 . 1 e s
M
= ! aie not statistically
uiffeient fiom 1.
) 04 . 0 : ( 857 . 0 se
D
= ! which is significantly uiffeient fiom u.S which is the Nash
solution. So faii bit of collusive behavioi.
Next to investigate why this collusion in the uuopoly phase (assume, baseu on
pievious iesult that 1 =
M
! ).

Specify

1 =
ts
! if monopoly
) (
ts ts
f ! = otheiwise (1S)
wheie
ts
iepiesent maiket chaiacteiistics.
}oint estimation of (14), (1S) anu (16) yielus
!
ts
= 0.75D(BothBELL)
ts
+0.72D(Ind / BELL)
ts
+0.83D(BELL / Ind)
ts
+0.99D(Ind / Ind)
ts
foi the case of Buopoly.
Note coefficient highest when both fiims aie inuepenuent. So collusion
maximum when theie aie two inuepenuents in the same maiket. Why.
The explanation is because of multi-maiket inteiaction.

ts ts ts ts ts
AGE LEAD T MULTIMARKE CROSSOWN 561 . 0 18 . 0 ) ( 1 . 9 7 . 10 ! ! + = " (16)

CR0SS0WN: =1 if the fiims meet in othei iegions
N0LTINARKET: Numbei of othei maikets the two fiims meet in.
LEAB: Length of monopoly peiiou
AuE: Numbei of months of intiouuction of cellulai seivice in a given maiket.

Theie is significant cioss-owneiship effects in the mobile telephone inuustiy,
inuicating that if opeiatois co-own an opeiating license elsewheie, they tenu to
colluue moie. Since inuepenuent opeiatois have fewei iestiictions to co-own
othei opeiatois than the Regional Bell companies (RB0C) uo, this iesult explains
oui eailiei finuings in which RB0Cs colluue less than inuepenuent opeiatois.
Thus empiiical suppoit foi multi-maiket collusion.

),_ #9FF>?J9=4 '@CE@<;J<? J= E C<A<E@<N .=@<CED@J9=

9E2#1"#< J"00 K26#$/0 ABLM:

It is known that in188u's iailioau was a caitel. uiain was shippeu by Rail fiom
Chicago to the East coast. The time inuex iefeis to the week between the fiist
week of 188u anu the sixteenth week of 1886. The piice is baseu on a weekly
poll taken by the caitel of it's membeis. Piices show the following behavioi (See
Figuie below).





If the maiket uemanu cuive has a stochastic component, an unexpecteuly low
piice may signal eithei ueviations fiom collusive output oi "uownwaiu" uemanu
shocks. 0nuei these situations, fiims uetei ueviations fiom collusive output
levels by thieatening to piouuce at Couinot quantities foi a peiiou of fixeu
uuiation whenevei they obseive maiket piices below some "tiiggei" piice. Thus
piice wais can be equilibiium collusive outcome of a uynamic non coopeiative
maiket game. (uieen anu Poitei).

Econometiic Stiategy: theie will be peiiouic switches anu ieveisions between
Couinot anu collusive output levels. No explicit test is offeieu to test this
paiticulai mouel. The test is uesigneu to test whethei significant switches in
suppliei behavioui occuiieu, anu to iuentify the peiious in which they took
place.
t
p

t t t t
U L p Q
1 2 0
log log + + + = ! " ! (17)
t
L is a uummy equal to 1 if uieat Lakes weie open to navigation (because they
fioze in wintei).


Fiims Total Cost:
i
it
i it i
F q a q C + =
!
) ( (18)
Thus we have common scale paiametei ! anu fiim specific Fiim Specific fixeu
costs
i
F anu fiim specific shift paiametei
i
a .

Aggiegate Quasi Supply Cuive:
! !
"
=
#
#
$
%
&
&
'
(
+
1
1
)
)
*
+
q a s p s
i it
it
t it
(19)

0nuei these functional foim assumptions,
i
j
i
it
s
a
a
s ! =
"
#
#
$
$
1
1
1
1
.

(Steps: consiuei the case when foi each fiim,
p
t
1+
!
it
"
!
"
#
$
%
&
=#a
i
q
#'1

Solve foi q, then
!
!
! !
!"

Biviue one by the othei)


Theiefoie (19) becomes

1
) , ( 1
!
"
=
#
#
$
%
&
&
'
(
+
)
)
*
+
t i
t
t
Q a D p (19')
wheie
!
=
it i t
s " "

!

!
!
"
#
$
$
%
&
+ ' ' + =
(
)
*
+ +
t
t t
Q D p 1 log log ) 1 ( log log
1 0
! " # ! " #
(2u)



Two Behaviouial Regimes

1. Reveisionaiy (punishment) peiiou:
R
t
! ! =
log p
t
= lnD!ln 1+
!
R
"
"
#
$
%
&
'
"
#
$
%
&
'
(
)
*
*
+
,
-
-
#
0
*
! " ### $ ###
+(! !1)
"
1
!
logQ
t


2. Collusive Peiiou:
N
t
! ! =
log p
t
= lnD!log 1+
!
R
!
"
#
$
%
&
'
"
#
$
%
&
'
(
)
*
*
+
,
-
-
"
0
*
! " ### $ ###
+(# !1)
"
1
!
logQ
t
+log
1+
!
R
!
(
)
*
+
,
-
1+
"
N
!
(
)
*
+
,
-
"
3
!" # $ #


This can be summaiizeu by

... log log
3 1
*
0
+ + + =
t t t
I Q p ! ! ! (22)

Beie 1 =
t
I if Collusive,
= u if punishment phase

If
t
I is known, then usual 2 SLS.
If
t
I is not obseivable, then let

!
"
#
$
=
) 1 ( 0
1
%
%
prob
prob
I
t


Puf of
t
p log

( ) ( )
t t t t t t
X I p h X I p h , 0 | log * ) 1 ( , 1 | log * = ! + = " "

wheie
t
X aie uemanu shifteis.

Likelihoou function:
! ! !"#!!"#$!

0SE E-N Algoiithm: E stanus foi taking expectations ovei missing "stuff" ( )
t
I
N stanus foi maximizing with iespect to paiameteis in pievious iteiation to get
paiameteis in next iteiation.

E step Let !"#$ !
!
! ! ! !
!
. Stait with initial guess. Call this !
!
!
. Theie will be
a guess foi each time peiiou t. calculate !
!
!
!
!
!
!

N step: uet othei paiameteis by maximizing likelihoou function. Call this
!!!
!
!
! !! !
!
!
!.


E step (again: now with bite): !
!
!
! !" !
!
! !! !"" !"#"$%&%#' !"#$ !"#$ !"#$
Calculate !
!
!
!
!
!
!
.
N step: maximize again to get paiameteis.

Stop when coiielation between subsequent sequences of estimateu w is u.999.


The iegimes aie classifieu to collusive oi ieveisionaiy peiious baseu on the
value of w.

545 . 0
3
= ! : So theie is some eviuence of collusive anu punishment behavioui.


9*00-52$:

Poitei showeu that the }EC uata aie inuicative of multiple supply iegimes with
piices ieuuceu by almost 4u% uuiing piice wais.
Ellison looks at Quantity tiiggeis (what actually tiiggeis the piice wais).
Nouel is same as in Poitei except

Pr ob(I
t+1
=1| I
t
, X
t
) =
e
!W
t
1+e
!W
t
( )


(Naikov Stiuctuie)

wheie ] , [
t t t
X I W = .
t
X contains tiiggei vaiiables"
1. 0nusually Laige Naiket Shaies: BIuSBARE2
!
!
!
!
"
#
$
$
$
$
%
&
'
(
)
*
+
,
-
i
it
it
i
s s
Max
.
_

wheie
it
s is the actual maiket shaie.
_
it
s is the "expecteu" maiket shaie. |calculateu as (a)
aveiage of pievious 12 weeks shaies anu (b) quota levelsj

i
! vaiiance of fiim -'s maiket shaie.

2. 0sually high maiket 0utput. Pioxies foi laige uemanu changes aie
a.
^
it
u : which aie the uemanu cuive iesiuuals
b.
^
it
v which aie the unanticipateu uemanu shocks (iesiuuals) fiom

it it it
v u u + =
!1
"

RES0LTS:
1. When only
t
I is useu as a ueteiminant of ) 1 ( Pr
1
=
+ t
I ob , then we get
975 . 0 025 . 0 ) 1 ( Pr
067 . 0 93 . 0 ) 0 ( Pr
) 1 ( Pr ) 0 ( Pr
1 1
=
=
= =
+ +
t
t
t t
I ob
I ob
I ob I ob


2. 0se
t
I anu
t
X as ueteiminants of ) 1 ( Pr
1
=
+ t
I ob , then it woulu seem that
unusually laige maiket shaies biing uown the piobability of collusion anu
it
v seems to mattei.