Essays on Economics of Adaptive Learning and Imperfect Monitoring

Janjgava, Batlome

The topic of this dissertation is equilibrium selection in models with incomplete and imperfect information. The dissertation consists of three chapters. In the first two chapters, I focus on firms' decision problems with a structural uncertainty and imperfect monitoring. In the first chapter, co-authored with Sergey Slobodyan, we study a market with two firms competing in quantities. Firms are uncertain about demand parameters and have to learn them using price signals. Although the Cournot output is the Nash equilibrium in the model, we identify conditions when cooperative behavior may arise due to learning and find an endogenous price threshold that triggers such behavior. We show that cooperation is more probable in markets with higher precision of firm-specific shocks. In the second chapter, I investigate the social efficiency of free entry in homogeneous product markets. In general, free entry is considered desirable for a society from a social welfare point of view and thus, represents traditional wisdom among economic professions. However, many economists have challenged this view and shown that under Cournot oligopoly with fixed setup costs, the free entry equilibrium always delivers excessive entry in homogeneous product markets, known as the excess entry theorem. In this chapter, I reexamine the...

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