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Is There a Market for Work Group Servers? Evaluating Market Level Demand Elasticities Using Micro and Macro Models

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  • John Van Reenen

Abstract

This 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 Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0650.

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Date of creation: Sep 2004
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Handle: RePEc:cep:cepdps:dp0650

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: demand elasticities; network servers; computers; anti-trust;

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  1. Shane M. Greenstein, 1996. "From Superminis to Supercomputers: Estimating Surplus in the Computing Market," NBER Chapters, in: The Economics of New Goods, pages 329-372 National Bureau of Economic Research, Inc.
  2. Jerome Foncel & Marc Ivaldi, 2005. "Operating System Prices In The Home Pc Market," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 265-297, 06.
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Cited by:
  1. Olmo Silva, 2004. "Entrepreneurship: Can the Jack-of-All-Trades Attitude be Aquired?," CEP Discussion Papers dp0665, Centre for Economic Performance, LSE.
  2. Martin S. Gaynor & Samuel A. Kleiner & William B. Vogt, 2013. "A Structural Approach to Market Definition With an Application to the Hospital Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 243-289, 06.

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