Ruhr Economic Papers

Ruhr Economic Papers #576

The Nonparametric Approach to Evolutionary Oligopoly

by Hamed M. Moghadam

RGS, TUD, 09/2015, 23 S./p., 8 Euro, ISBN 978-3-86788-665-9 DOI: 10.4419/86788665

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Abstract

A recent paper of Carvajal, Deb, Fenske, and Quah (Econometrica 2013) applies the revealed preference approach in the context of a quantity competition oligopoly game. This paper aims to present a different solution concept for an evolutionary model in the asymmetric oligopoly setup where firms have different cost functions to produce a homogenous good. Then, using the approach introduced by Carvajal et al. (2013), we derive the testable conditions of the evolutionary oligopoly model. Therefore, contrary to the typical empirical literature in IO, without making any parametric assumption regarding to the demand curve and the cost function, this nonparametric approach characterizes a set of conditions (restrictions) on observational dataset to be consistent with evolutionary oligopoly model. An empirical application to the oil market with OPEC producers and Non-OPEC producers is presented and we compare the rejection
rates of both Cournot and evolutionary hypotheses.

JEL-Classification: C73, D22, D43

Keywords: Evolutionary oligopoly; observable restrictions; non-parametric test; oil market

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