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 technology shock and firm-specific cost distributions. Finally, we propose a likelihood-based estimation method and apply it to the global crude oil market. Using counterfactuals, we also quantify the effect of firms sharing information about their costs on consumer welfare. We also extend the model to include either firm-specific conduct parameters, nonlinear demand, or selective entry.