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Finite Sample Performance of a Conduct Parameter Test in Homogenous Goods Markets

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  • Yuri Matsumura
  • Suguru Otani

Abstract

We assess the finite sample performance of the conduct parameter test in homogeneous goods markets. Statistical power rises with an increase in the number of markets, a larger conduct parameter, and a stronger demand rotation instrument. However, even with a moderate number of markets and five firms, regardless of instrument strength and the utilization of optimal instruments, rejecting the null hypothesis of perfect competition remains challenging. Our findings indicate that empirical results that fail to reject perfect competition are a consequence of the limited number of markets rather than methodological deficiencies.

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  • Yuri Matsumura & Suguru Otani, 2023. "Finite Sample Performance of a Conduct Parameter Test in Homogenous Goods Markets," Papers 2310.04576, arXiv.org, revised Nov 2023.
    • Handle: RePEc:arx:papers:2310.04576
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    2. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February.
    3. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
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