Econometric issues related to identification of the market power parameter

Abstract

This study demonstrates the crucial role the specification of the cost function plays in identifying the market power parameter in autarky models. For constant marginal cost or marginal cost with quantity interacting with input prices, the market power parameter in autarky models in identified without a rotation of the demand curve. If a comodity is sold in both domestic and foreign markets, the market power parameters are identified regardless of the specific form of the marginal cost and demand specifications.

Apple Export Competition between the United States and China in the Association of Southeast Asian Nations

“…The conceptual econometric model is derived from the theoretical analysis. We follow the new empirical industrial organization literature (see Devadoss, Luckstead, and Mittelhammer [2013], for a detailed discussion) to address issues of identification of the market power parameters (defined subsequently), which are key to the empirical estimation. 6 For econometric analysis, we include, in addition to ASEAN imports from the United States and China, ASEAN imports from the Southern Hemisphere (Australia, Chile, and New Zealand).…”

“…x are, respectively, industry-level marginal cost and market power parameter. When starting from the industry-level profit function, this weighted average is not readily apparent (see Devadoss, Luckstead, and Mittelhammer [2013] for additions analysis).…”