Incorporating Flexible Demand Systems in Empirical Models of Market Power

This file is part of IDEAS, which uses RePEc data

Incorporating Flexible Demand Systems in Empirical Models of Market Power

Author Info

Peterson, Everett B.
Cotterill, Ronald W.

Abstract

Measuring the degree of price coordination between firms in a differentiated products industry is particularly challenging because it is necessary to utilize a demand system that is sufficiently flexible, allows the imposition of theoretical restrictions, and allow for the derivation of the functional form of the corresponding price reaction functions. Previous research has relied on restrictive demand systems in order to maintain the tractability of the price reaction functions. The purpose of this paper is determine whether using more flexible demand systems can yield a set of first-order profit maximization conditions that are mathematically tractable and amendable to estimation. The demand systems considered are the Almost Ideal Demand System (AIDS), the Linear Approximate Almost Ideal Demand System (LAIDS), and the Rotterdam demand system. This paper also expands prior work on estimating brand level demand elasticities by endogenizing category level expenditures in the context of a weakly separable demand system. This yields some new and interesting insights for the measurement of market power in differentiated product industries. We show that while it is not possible to derive explicit price reaction functions for any of these demand systems, given certain assumptions, the Rotterdam demand system does yield an explicit set of profit maximization first-order conditions that can be estimated.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25159.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 1998
Date of revision:
Handle: RePEc:ags:uconnr:25159

Contact details of provider:
Postal: 1376 Storrs Road, Unit 4021, Storrs, CT 06269-4021
Phone: (860) 486-1927
Fax: (860) 486-2461
Email:
Web page: http://www.fmpc.uconn.edu/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (AgEcon Search).

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," Journal of Business, University of Chicago Press, vol. 73(1), pages 109-37, January. [Downloadable!] (restricted)
Connor, John M & Peterson, Everett B, 1992. "Market-Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products," Journal of Industrial Economics, Blackwell Publishing, vol. 40(2), pages 157-71, June. [Downloadable!] (restricted)
Moschini, GianCarlo, 2002. "Units of Measurement and the 'Stone Index' in Demand System Estimation," Staff General Research Papers 5058, Iowa State University, Department of Economics.
Chalfant, James A, 1987. "A Globally Flexible, Almost Ideal Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 233-42, April.
Brown, Mark G. & Behr, Robert M. & Lee, Jong-Ying, 1994. "Conditional Demand And Endogeneity? A Case Study Of Demand For Juice Products," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(01), July. [Downloadable!]
Capps, Oral & Tsai, Reyfong & Kirby, Raymond & Williams, Gary W., 1994. "A Comparison Of Demands For Meat Products In The Pacific Rim Region," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(01), July. [Downloadable!]
Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June. [Downloadable!] (restricted)
Haller, Lawrence E. & Cotterill, Ronald W., 1996. "Evaluating Traditional Share-Price and Residual Demand Measures of Market Power in the Catsup Industry," Research Reports 25193, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
Lafrance, Jeffrey T., 1991. "When Is Expenditure "Exogenous" In Separable Demand Models?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(01), July. [Downloadable!]

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Regorsek, Darja & Erjavec, Emil, 2007. "Food Demand in Slovenia," 103rd Seminar, April 23-25, 2007, Barcelona, Spain 9409, European Association of Agricultural Economists. [Downloadable!]

Statistics

Access and download statistics

Did you know? You too can volunteer for RePEc, for example by editing a NEP report.

This page was last updated on 2009-12-11.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.