DP13255 Firms' Beliefs and Learning: Models, Identification, and Empirical Evidence

Author(s): Victor Aguirregabiria, Jihye Jeon
Publication Date: October 2018
Keyword(s): beliefs, dynamics, identification, learning, Oligopoly competition, Structural models
JEL(s): C57, D81, D83, D84, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13255

This paper reviews recent literature on structural models of oligopoly competition where firms have biased beliefs about primitives of the model (e.g. demand, costs) or about the strategic behavior of other firms in the market. We describe different structural models that have been proposed to study this phenomenon and examine the approaches used to identify firms' beliefs. We discuss empirical results in recent studies and show that accounting for firms' biased beliefs and learning can have important implications on our measures and interpretation of market efficiency.