TY  - JOUR
AU  - Genesove,David
AU  - Mullin,Wallace P.
TI  - Validating the Conjectural Variation Method: The Sugar Industry, 1890-  1914
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5314
PY  - 1995
Y2  - October 1995
UR  - http://www.nber.org/papers/w5314
L1  - http://www.nber.org/papers/w5314.pdf
N1  - Author contact info:
David Genesove
Department of Economics
Faculty of Social Sciences
Hebrew University of Jerusalem
Mount Scopus, Jerusalem 91905  ISRAEL
Tel: 972-2-5883128
Fax: 972-2-5816071
E-Mail: genesove@mscc.huji.ac.il

Wallace Mullin
Department of Economics
George Washington University
2115 G Street N.W.
Washington, DC 20052
Tel: 202/994-8087
Fax: 202/994-6147
E-Mail: wpmullin@gwu.edu
AB  - The Conjectural Variations (CV) methodology uses the responsiveness of price to cost determinants under differing demand conditions to infer market power and cost.  It thus substitutes demand information for complete cost information.  In this paper we use the American sugar refining industry at the turn of the century to assess the efficacy of the CV approach.  We do so by comparing direct measures of marginal cost and price-cost markups with the indirect estimates obtained from the CV method.  We find that the CV method performs reasonably well.  It yields estimates of industry conduct that are close to the direct measure we derive from full cost information, and robust to the choice of the functional form of demand.  The conduct parameter is underestimated, but the deviation is minimal in our context.  The CV methodology does a better job of detecting differences in conduct arising from different structural regimes (corresponding to the aftermath of entry), but only when the researcher imposes the (a priori known) restriction of cost stability.
ER  -