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Resolving the conflict on conduct parameter estimation in homogeneous goods markets between Bresnahan (1982) and Perloff and Shen (2012)

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  • Matsumura, Yuri
  • Otani, Suguru

Abstract

We revisit conduct parameter estimation in homogeneous goods markets to resolve the conflict between Bresnahan (1982) and Perloff and Shen (2012) regarding the identification and the estimation of conduct parameters. We point out that Perloff and Shen’s (2012) proof is incorrect and its simulation setting is invalid. Our simulation shows that estimation becomes accurate when demand shifters are properly added in supply estimation and sample sizes are increased, supporting Bresnahan (1982).

Suggested Citation

  • Matsumura, Yuri & Otani, Suguru, 2023. "Resolving the conflict on conduct parameter estimation in homogeneous goods markets between Bresnahan (1982) and Perloff and Shen (2012)," Economics Letters, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002185
    DOI: 10.1016/j.econlet.2023.111193
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    References listed on IDEAS

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    1. Jeffrey Perloff & Edward Shen, 2012. "Collinearity in Linear Structural Models of Market Power," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(2), pages 131-138, March.
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    5. Sherrill Shaffer & Laura Spierdijk, 2017. "Market power: competition among measures," Chapters, in: Jacob A. Bikker & Laura Spierdijk (ed.), Handbook of Competition in Banking and Finance, chapter 1, pages 11-26, Edward Elgar Publishing.
    6. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Conduct parameters; Homogeneous goods market; Multicollinearity problem; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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