A framework for applied dynamic analysis in I.O

This paper outlines a framework which computes and analyzes the equilibria from a class of dynamic games. The framework dates to Ericson and Pakes (1995), and allows for a finite number of heterogeneous firms, sequential investments with stochastic outcomes, and entry and exit. The equilibrium analyzed is a Markov Perfect equilibrium in the sense of Maskin and Tirole (1988). The simplest version of the framework is supported by a publically accessible computer program which computes equilibrium policies for user-specified primitives, and then analyzes the evolution of the industry from user-specified initial conditions. We begin by outlining the publically accessible framework. It allows for three types of competition in the spot market for current output (specified up to a set of parameter values set by the user), and has modules which allow the user to compare the industry structures generated by the Markov Perfect equilibrium to those that would be generated by a social planner and to those that would be generated by prefect collusion.' Next we review extensions that have been made to the simple framework. These were largely made by other authors who needed to enrich the framewo