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Pass-Through as a Test for Market Power: An Application to Solar Subsidies

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  • Jacquelyn Pless
  • Arthur A. van Benthem

Abstract

We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than- complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.

Suggested Citation

  • Jacquelyn Pless & Arthur A. van Benthem, 2017. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," NBER Working Papers 23260, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23260
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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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