Empirical Framework for Cournot Oligopoly with Private Information

Abstract

We propose an empirical framework for Cournot oligopoly with private information about costs. First, considering a linear demand with a random intercept, we characterize the Bayesian Cournot-Nash equilibrium and determine its testable implications. Then we establish nonparametric identification of the joint distribution of demand and market-specific technology shock, and then firm-specific cost distributions. Following the identification steps, we propose a likelihood-based estimation method, and for illustration, apply it to the global upstream market for crude oil. We also extend the baseline model to include either conduct parameters, nonlinear demand, or selective entry.