Is There a Market for Work Group Servers? Evaluating Market Level Demand Elasticities Using Micro and Macro Models
AbstractThis paper contains an empirical analysis demand for "work-group" (or low-end) servers. Servers are at thecentre of many US and EU anti-trust debates, including the Hewlett-Packard/Compaq merger and investigationsinto the activities of Microsoft. One question in these policy decisions is whether a high share of work serversindicates anything about shortrun market power. To investigate price elasticities we use model-level panel dataon transaction prices, sales and characteristics of practically every server in the world. We contrast estimatesfrom the traditional "macro" approaches that aggregate across brands and modern "micro" approaches that usebrand-level information (including both "distance metric" and logit based approaches). We find that the macroapproaches lead to overestimates of consumer price sensitivity. Our preferred micro-based estimates of themarket level elasticity of demand for work group servers are around 0.3 to 0.6 (compared to 1 to 1.3 in themacro estimates). Even at the higher range of the estimates, however, we find that demand elasticities aresufficiently low to imply a distinct "anti-trust" market for work group servers and their operating systems. It isunsurprising that firms with large shares of work group servers have come under some antitrust scrutiny.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0650.
Date of creation: Sep 2004
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
demand elasticities; network servers; computers; anti-trust;
Other versions of this item:
- John Van Reenen, 2004. "Is there a market for work group servers? Evaluating market level demand elasticities using micro and macro models," LSE Research Online Documents on Economics 773, London School of Economics and Political Science, LSE Library.
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L4 - Industrial Organization - - Antitrust Issues and Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-02 (All new papers)
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