An approximate dynamic programming approach to solving dynamic oligopoly models
In this article, we introduce a new method to approximate Markov perfect equilibrium in large-scale Ericson and Pakes (1995)-style dynamic oligopoly models that are not amenable to exact solution due to the curse of dimensionality. The method is based on an algorithm that iterates an approximate bes...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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Wiley Blackwell
2012
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| Online Access: | http://hdl.handle.net/1721.1/74676 https://orcid.org/0000-0002-5856-9246 |
| _version_ | 1826196015455141888 |
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| author | Farias, Vivek F. Saure, Denis Weintraub, Gabriel Y. |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Farias, Vivek F. Saure, Denis Weintraub, Gabriel Y. |
| author_sort | Farias, Vivek F. |
| collection | MIT |
| description | In this article, we introduce a new method to approximate Markov perfect equilibrium in large-scale Ericson and Pakes (1995)-style dynamic oligopoly models that are not amenable to exact solution due to the curse of dimensionality. The method is based on an algorithm that iterates an approximate best response operator using an approximate dynamic programming approach. The method, based on mathematical programming, approximates the value function with a linear combination of basis functions. We provide results that lend theoretical support to our approach. We introduce a rich yet tractable set of basis functions, and test our method on important classes of models. Our results suggest that the approach we propose significantly expands the set of dynamic oligopoly models that can be analyzed computationally. |
| first_indexed | 2024-09-23T10:19:28Z |
| format | Article |
| id | mit-1721.1/74676 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:19:28Z |
| publishDate | 2012 |
| publisher | Wiley Blackwell |
| record_format | dspace |
| spelling | mit-1721.1/746762022-09-26T17:13:09Z An approximate dynamic programming approach to solving dynamic oligopoly models Farias, Vivek F. Saure, Denis Weintraub, Gabriel Y. Sloan School of Management Farias, Vivek F. In this article, we introduce a new method to approximate Markov perfect equilibrium in large-scale Ericson and Pakes (1995)-style dynamic oligopoly models that are not amenable to exact solution due to the curse of dimensionality. The method is based on an algorithm that iterates an approximate best response operator using an approximate dynamic programming approach. The method, based on mathematical programming, approximates the value function with a linear combination of basis functions. We provide results that lend theoretical support to our approach. We introduce a rich yet tractable set of basis functions, and test our method on important classes of models. Our results suggest that the approach we propose significantly expands the set of dynamic oligopoly models that can be analyzed computationally. 2012-11-19T17:32:24Z 2012-11-19T17:32:24Z 2012-06 Article http://purl.org/eprint/type/JournalArticle 0741-6261 1756-2171 http://hdl.handle.net/1721.1/74676 Farias, Vivek, Denis Saure, and Gabriel Y. Weintraub. “An Approximate Dynamic Programming Approach to Solving Dynamic Oligopoly Models.” The RAND Journal of Economics 43.2 (2012): 253–282. https://orcid.org/0000-0002-5856-9246 en_US http://dx.doi.org/ 10.1111/j.1756-2171.2012.00165.x RAND Journal of Economics Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Wiley Blackwell MIT web domain |
| spellingShingle | Farias, Vivek F. Saure, Denis Weintraub, Gabriel Y. An approximate dynamic programming approach to solving dynamic oligopoly models |
| title | An approximate dynamic programming approach to solving dynamic oligopoly models |
| title_full | An approximate dynamic programming approach to solving dynamic oligopoly models |
| title_fullStr | An approximate dynamic programming approach to solving dynamic oligopoly models |
| title_full_unstemmed | An approximate dynamic programming approach to solving dynamic oligopoly models |
| title_short | An approximate dynamic programming approach to solving dynamic oligopoly models |
| title_sort | approximate dynamic programming approach to solving dynamic oligopoly models |
| url | http://hdl.handle.net/1721.1/74676 https://orcid.org/0000-0002-5856-9246 |
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