an empirical model of firm entry with endogenous product...
TRANSCRIPT
![Page 1: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/1.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
An empirical model of firm entry withendogenous product-type choicesSeim(2006), RAND Journal of Economics
Wooyong Lee
31 Jan 2013
![Page 2: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/2.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Introduction
Before : entry model, identical products
In this paper : entry with simultaneous location choice
Before or some other papers : complete info game
In this paper : incomplete info game
(greatly reduces computational burden)
Results : video retail industry location data
firms differentiate to shield profit from competitionmore scope for product differentiation → more marketpower (more entry)
![Page 3: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/3.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Outline
1 Summary of the paperModelEstimationData and Result
2 Contribution and weakness of the paperContribution: Endogenized product-quality choiceContribution: Incomplete information on profitsWeakness of the paper
3 Suggestions for further research
![Page 4: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/4.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Section 1
Summary of the paper
![Page 5: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/5.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Model Setup
market m = 1, 2, . . . ,M
let’s focus on one market m:(script m removed for ease of exposition)
location l = 0, 1, . . . ,Lfirm f = 1, 2, . . . ,Fdecision df = (dfl )Ll=0 ∈ {0, 1}L+1
![Page 6: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/6.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Model Setup
payoff Πfl = Xlβ + ξ + h(Γ.l ,n) + εfl
X : observable market characteristics
ξ : unobservable market characteristics, known to firms
h() : effect of competition on profits; specified later
Γ.l : interaction between l and 1 through Ln = (nl )
Ll=1 : number of firms at location l
εfl : idiosyncratic profitability of firm f at location l
Πf 0 normalized to 0
![Page 7: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/7.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Assumptions
Assumption (Independent symmetric private values)
ε1, . . . , εF are private information to the players and areindependently and identically distributed draws from thedistribution G (·)
Assumption (Additively separable competitors’ effects)
h(Γ.l ,n) =∑L
k=1 γkl nk
Assumption (Distance bands)
let dkl be the distance between location k and l.γkl = γk ′l = γb if Db ≤ γkl , γk ′l < Db+1, where Db and Db+1
denote cutoffs that define a distance band.
![Page 8: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/8.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Assumptions
Under distance bands b = 0, 1, . . . ,B, with correspondingcutoff points Db and Db+1 where D0 = 0, the resulting payofffunction is given by
Πfl = Xlβ + ξ +∑
b γbNbl + εfl
γb : competitive effect in distance band b
Nbl =∑
k Ibkl nk : number of firms in distance band b
Ibkl := I(dkl ∈ [Db,Db+1)), I(·) : indicator function
nk : number of firms at location k
E :=∑
b Nbl : total number of firms in the market
![Page 9: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/9.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
![Page 10: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/10.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
Given the expected competitor distribution across marketlocations, firms calculate its expected profit at each location l :
E(Πfl ) = Xlβ + ξ +∑
b γbE(Nbl ) + εfl
:= E(Π̄fl ) + εfl
note that E(Nbl ) =∑
k IbklE(nk )
Structure of the game :
1 firms decide whether or not to enter → E determined
2 Given number of firms E , firms decide locations
→ solve backward
![Page 11: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/11.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
Due to the symmetry of rival’s types, firm f ’s perception offirm g ’s location strategy is the same for all competitors.
Let θ1 = (β, γ). Given ξ,X, E , θ1, the probability thatcompetitor g chooses location l is given by
pgl (ξ,X,E, θ1)
= P(E(Π̄gl ) + εgl > E(Π̄gk ) + εgk ∀k 6= l , ∀g 6= f )
Expected number of competitors at location k is
E(nk ) = (E − 1)pgk
E(Nbl ) =∑
k IbklE(nk ) =
∑k Ib
kl (E − 1)pgk + I(b = 0)
![Page 12: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/12.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
Assumption
ε are i.i.d. draws from a type 1 extreme-value distribution withscale parameter normalized to one.
By this assumption, there exists a closed-form formula for pgl :
pgl =exp{E(Π̄gl )}∑L
k=1 exp{E(Π̄gk)}
Since types are symmetric, every firm has the same equilibriumconjecture of its competitors’ location choices :
pg := (pgl )Ll=1 = pf = p∗ := (p∗l )Ll=1
![Page 13: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/13.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
A firm’s vector of equilibrium conjectures over all locations l isdefined by
p∗l =exp{E(Π̄l (X,p
∗, E , θ1))}∑Lk=1 exp{E(Π̄k (X,p∗, E , θ1))}
=exp{Xlβ + γ0 + (E − 1)
∑b γb
∑j Ib
jl p∗j }∑L
k=1 exp{Xkβ + γ0 + (E − 1)∑
b γb∑
j Ibjk p∗j }
for all l = 1, . . . ,L
![Page 14: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/14.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
let’s analyze E :
In equilibrium, each entrant earns nonnegative profits inexpectation, while any additional entrant would sufferlosses.
The probability of entry by a firm into a market involves acomparison of a weighted average of payoffs acrosslocations to the normalized payoff of not entering.
![Page 15: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/15.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Conjectures and equilibrium
Given the assumption of i.i.d. type 1 extreme-valueprofitability types,
P(entry) =exp(ξ)
∑Ll=1 exp{E(Π̄l (X,p
∗, E , θ1))}1 + exp(ξ)
∑Ll=1 exp{E(Π̄l (X,p∗, E , θ1))}
Since the probability of entry is identical acrosscompetitors,
E = F × P(entry)
Ways to choose F : 50% enter the market, F = 50
![Page 16: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/16.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Estimation : Econometric Specification
Assumption
The expected number of entrants predicted by the modelexactly equals the number of entrants observed in the data.
With E being the observed number of entrants, by the entryprobability equation,
ξ = ln E − ln(F − E)− ln( L∑
l=1
exp{E(Π̄l (X,p∗, E , θ1))}
)
Assumption
ξm are i.i.d. random draws from a Normal distribution withparameter θ2 = (µ, σ) and independent of ε.
![Page 17: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/17.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Likelihood
Data from market m = 1, . . . ,M
Each market is treated as an independent Fm-playerlocation game
dm = (dm1 , . . . , d
mF ) : vector of actions taken by Fm
players in market m
The likelihood function is given by
L(θ1, θ2) =M∏
m=1
pθ1(dm|ξm,Xm, Em)gθ2(ξm|Xm, Em,Fm)
![Page 18: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/18.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Estimation Procedure
1 initialize (θ1, θ2)
2 given (θ1, θ2), (Xm)Mm=1, F , (Em)M
m=1, solve equilibriumconjecture equation for pm for each m separately
3 calculate ξm with pm, (θ1, θ2), (Xm)Mm=1, F , (Em)M
m=1 foreach m
4 estimate (θ1, θ2) by maximizing likelihood function
![Page 19: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/19.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Estimation Issues
initial value : a grid search over the parameter space
likelihood maximization : Nelder-Mead optimizationalgorithm
problematic when there are multiple equilibria : appendixproves uniqueness for two distance bands with fourlocations, simulation evidence suggests further result
![Page 20: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/20.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Data description
video retail industry
videotapes are standardized; main differentiation by storelocation
isolated markets; no large city nearby, no metropolitan area
exclude tourist regions
locations by Census tracts
![Page 21: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/21.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Data description
![Page 22: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/22.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Data description
![Page 23: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/23.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Data description
d0 = 0.5 miles, d1 = 3 miles
![Page 24: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/24.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Data description
![Page 25: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/25.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Estimation Result
![Page 26: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/26.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Estimation Result
![Page 27: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/27.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Simulation Result
![Page 28: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/28.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Simulation Result
![Page 29: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/29.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Section 2
Contribution and weakness of the paper
![Page 30: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/30.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Previous Works
focused on tradeoff between demand and intensity ofcompetition
Early works on product quality differentiation :Hotelling(1929), Lancaster(1966,1979)
(competition on characteristic space)
![Page 31: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/31.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Model for Endogenized Product Choice
Empirically tractable model of competition oncharacteristic space (tractable for large L)
Unisolated market : locations affect each other viadistance
![Page 32: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/32.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Empirical Results
Firms differentiate to shield from competition
More scope for product differentiation → more marketpower(more entry)
More disperse population → less gain fromdifferentiation(slightly more entry in total)
The two offset each other in video retail industry data
![Page 33: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/33.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Previous Works
Complete information game → computational burden
→ Limited number of locations
Mazzeo(2002) : entry with product-quality choice,complete information game
→ uses motel industry data, computation is burdensomewith 3 locations
![Page 34: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/34.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Incomplete Information Game
Introduce private information : idiosyncratic profitability
sources: cost, intangible assets, customer service,inventory maintenance etc.
As Rust(1994) notes : Bayesian Nash equilibriumconjectures are easy to derive
Other works under information asymmetry :
Aguirregabiria and Mira(2006), Pakes, Ostrovsky andBerry(2005), Pesendorfer and Schmidt-Dengler(2003)
![Page 35: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/35.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Cost of Assumptions
Distance band approach :
All locations with same distance band have the sameimpact
two at the north � one at the north and one at the south
ε being i.i.d. type 1 extreme value distribution :
idiosyncratic profitability uncorrelated across firms at alocation, across location for a firm
no spatial correlation
![Page 36: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/36.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Possible Issues
When there are multiple equilibria :
matching location probabilities to observed locationchoices is problematic
uniqueness for general setting is only verified by simulation
![Page 37: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/37.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Section 3
Suggestions for further research
![Page 38: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/38.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Further research so far
entry game with multistore/multiproduct firms (Jia 2008)
dynamic entry game
timing game (Sweeting 2009)
estimation with multiple equilibria (Aguirregabiria 2012 :identical product case)
estimation in case of location heterogeneity(Aguirregabiria 2012)
![Page 39: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/39.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Further research so far
estimation of demand system by quantity, price data ofstores : Wang(2010)
effect of other factors on entry decisions: regulation(Gowrisankaran and Krainer 2011), organizationalstructure (Takechi and Higashida 2012), managerial ability(Goldfarb and Xiao 2011)
![Page 40: An empirical model of firm entry with endogenous product ...faculty.arts.ubc.ca/pschrimpf/565/econ565_presentation_wooyong.pdf · Seim(2006) Wooyong Lee Summary Model Estimation Result](https://reader035.vdocument.in/reader035/viewer/2022071401/60ea9f8c13e9f867e56fd477/html5/thumbnails/40.jpg)
Seim(2006)
Wooyong Lee
Summary
Model
Estimation
Result
Contributionand Weakness
Product
Information
Weakness
Suggestions
Suggestions
nonlinear effect of additional entrant
relaxing distance band assumption
investigation of conditions for unique equilibrium