HOME ASSIGNMENT
Empirical Industrial Organization — EFIMM0097
University of Bristol, Academic Year 2021-2022
This home assignment is made of several questions, which must all be answered (no optional
questions). The points associated to each question are reported below in square brackets. The
first part of the assignment is a continuation of problem sets 7 and 8 and relates to the methods
discussed in topic 5: the estimation of entry games. Perform all the statistical analyses in this first
part of the assignment using MATLAB. The second part of the assignment asks you to discuss an
article not covered in class but included in the reading list.
In addition to writing your answers to all questions, you must provide a copy of the MATLAB codes
used to produce the results in the same document (only submit one computer-typed document
including both answers and codes). Each step of your MATLAB procedure should be well explained
and your answers should rely on the use of mathematical symbols and derivations (as we have been
doing in the course): whenever it is unclear where your results or conclusions come from, no points
will be assigned. The document with your answers and codes should be typed with the computer
(with Microsoft Word or any TeX editor), including mathematical formulae and tables (no hand
writing or drawing).
You must work entirely on your own. The deadline to return the document with your
answe
rs and the MATLAB codes is Monday 9th of May at 11:00am (Bristol time).
1
1 Estimation and Simulation of Entry Games [80 Points]
In this part, you will first estimate a simplified version of the model by Bresnahan & Reiss (1991b)
[i.e., BR] using MATLAB and, second, simulate a simplified version of the entry model by Berry
(1992) again using MATLAB. The estimation of BR using MATLAB requires you to combine
problem set 7 (estimation of probit model using MATLAB) and problem set 8 (estimation of BR
using Stata). The simulation of the entry model by Berry (1992) using MATLAB instead requires
you to perform novel tasks we only discussed in theory, but still building on the same two problem
sets: the simulation of normally distributed random variables with MATLAB (problem set 7)
starting from the Stata estimates of the full model by BR (problem set 8).
We start with the estimation of a binary version of the entry model by BR (1991b) with MATLAB
using the original data on tire dealers. Load the data “BRdata.csv” (these are the data used in
problem set 8), where all the variables have their original names (check out the details in BR,
1991b). The full data include markets with 0, 1, 2, 3, 4, 5, and more than 5 entrants. Focus on
potentially monopolistic markets with no or one tire dealer, drop those observations with “tire >
1”. Then, as in question A of problem set 8, consider the binary entry model:
Nm =