DP7323 Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work

Author(s): Chaim Fershtman , Ariel Pakes

Publication Date: June 2009

Keyword(s): Applied Markov Equilibrium , Dynamic Games , Dynamic Oligopoly

JEL(s): C63 , C73 , L13

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP7323.asp.asp

With applied work in mind, we define an equilibrium notion for dynamic games with asymmetric information which does not require a specification for players' beliefs about their opponent types. This enables us to define equilibrium conditions which, at least in principal, are testable and can be computed using a simple reinforcement learning algorithm. We conclude with an example that endogenizes the maintenance decisions for electricity generators in a dynamic game among electric utilities in which the costs states of the generators are private information.