A Nonparametric Test of Strategic Behavior in the Cournot Model
Posted: 4 Aug 2009
Date Written: July 29, 2009
We devise a nonparametric test of strategic behavior in a multiproduct Cournot oligopoly. It is assumed that firms have cost functions that do not change over the period of observation but that market demand can change in each period. Market prices and firm-specific production quantities are observed and it is assumed that neither the inverse demand functions nor the cost functions are known. The driving assumptions of the test are that market inverse demand functions are decreasing and differentiable at each period and that cost functions are increasing and convex for each firm. Under these very general conditions, we show that this test imposes strong restrictions on observed data. We apply the test to the crude oil market and find that strategic behavior is strongly rejected.
Keywords: competitive behavior, multiproduct Cournot oligopoly, nonparametric test, crude oil market, OPEC
JEL Classification: C14, C72, D21, D43
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