NBER Working Papers and Publications
|November 2004||Biases in Static Oligopoly Models? Evidence from the California Electricity Market|
with Christopher R. Knittel: w10895
Estimating market power is often complicated by the lack of reliable measures of marginal cost. Instead, policy-makers often rely on other summary statistics of the market, thought to be correlated with price cost margins---such as concentration ratios or the HHI. In many industries, these summary statistics may be only weakly correlated with deviations from perfectly competitive pricing. Beginning with Gollop and Roberts (1979), a number of empirical studies have allowed the data to identify industry competition and marginal cost levels by estimating the firms' first order condition within a conjectural variations framework. Despite the prevalence of such "New Empirical Industrial Organization" (NEIO) studies, Corts (1999) illustrates the estimated mark-up levels may be biased, since the ...
Published: Kim, Dae-Wook and Christopher R. Knittel. “Biases in Static Oligopoly Models? Evidence from the California Electricity Market.” The Journal of Industrial Economics LIV 4 (December 2006): 451-470.