Unobserved heterogeneity in dynamic games: Cannibalization and preemptive entry of hamburger chains in Canada
Authors:听Igami, M., Yang, N.
Publication: Quantitative Economics聽
Abstract:听
We develop a dynamic entry model of multi-store oligopoly with heterogeneous markets, and estimate it using data on hamburger chains in Canada (1970鈥�2005). Because more lucrative markets attract more entry, firms聽appear聽to favor the presence of more rivals. Thus unobserved heterogeneity across geographical markets creates an endogeneity problem and poses a methodological challenge in the estimation of dynamic games, which we address by combining the procedures proposed by Kasahara and Shimotsu (2009), Arcidiacono and Miller (2011), and Bajari, Benkard, and Levin (2007). The results suggest that the omission of unobserved market heterogeneity attenuates the estimates of competition, and the trade-off between cannibalization and preemption is an important factor behind the evolution of market structure.
Read full article: , July 20, 2016聽