Pk. Chintagunta et Dc. Jain, EMPIRICAL-ANALYSIS OF A DYNAMIC DUOPOLY MODEL OF COMPETITION, Journal of economics & management strategy, 4(1), 1995, pp. 109-131
Empirically validating and testing the specification of game theoretic
models has received limited attention in the marketing literature. Th
e authors provide an econometric framework for estimating the paramete
rs of response functions when the observed data in the market place ar
e the Nash equilibrium outcomes of an underlying dynamic duopoly game
specification. Specifically, the estimation procedure accounts for the
joint endogeneity of market shares and marketing efforts of market ri
vals using a system of simultaneous equations that included the market
response function and the Nash equilibrium conditions. A formal stati
stical test is used to detect model misspecification. The empirical an
alysis is carried out using data from four product markets: pharmaceut
ical, soft drink, beer, and detergent. Comparisons are provided with c
onventional estimation of the response function parameters in which th
e equilibrium conditions are ignored in the estimation. Managerial imp
lications of the empirical results are discussed.