Comment on Arradillas-Lopez and Tamer

Discussion of Aradillas-Lopez and TamerAllan Collard-WexlerNew York UniversityFebruary 8, 20081 A simple Aradillas-Lopez and Tamer esti-matorTo illustrate the power and ease of Aradillas-Lopez and Tamer’s approach,I will estimate a simple entry model in the spirit of Bresnahan and Reiss(1991) using only the restrictions that players use rationalizable strategies,on data from the ready-mix concrete industry. While this empirical exerciseisfairlystrippeddown,itcanbeadaptedforgreaterrealism,suchasallowingfor different types of entrants, or correlation in the unobserved component offirm profits. In the second section, I discuss the realism of Nash Equilibriumin applied work.1.1 DataI use data on entry patterns of ready-mix concrete manufacturers in isolatedtowns across the United States. In previous work such as Collard-Wexler16(2006) I have studied entry patterns in the ready-mix concrete market. Con-crete is a material that cannot be transported for much more than an hour,and thus it makes sense to study entry in local markets. I construct “iso-latedmarkets”byselectingallcitiesintheUnitedStateswhichareatleast20miles away from any other city of at least 2000 inhabitants. I then count thenumber of ready-mix concrete establishments in the U.S. Census Bureau’s1 2Zip Business Patterns for zip codes at most 5 miles away from the town.I call the number of ready-mix concrete firms in a market N and thejenumber of potential entrants in a market N . I set the ...