Identification of Firms’ Beliefs in Structural Models of Market Competition

Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behavior of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency, and welfare. Victor Aguirregabiria discusses the identification of firms’ beliefs using their observed actions — a revealed preference and beliefs approach. 

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