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Productivity, Market Power and Capacity Utilization When Spot Markets are Complete

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  • Benjamin Eden
  • Zvi Griliches

Abstract

Our test of price-taking behavior looks at the choice of capacity rather than the choice of output. It is motivated by a complete spot markets model in which goods are distinguished by the selling probabilities in addition to other characteristics. When output is explained by total man-hours and a capacity utilization proxy, the coefficient of the first variable is the elasticity of capacity with respect to fixed labor. Under competition and risk neutrality this coefficient is equal to an average labor share. We use this observation to interpret Abbot-Griliches-Hausman's regressions and to argue that once the capacity utilization proxy is included in the regression, Hall's data at the manufacturing level fail to reject the joint hypothesis of competition and risk neutrality. It is also argued that the coefficient of total man-hours does not tell us anything about monopoly power once the capacity utilization proxy is omitted from the regression.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3697.

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Date of creation: May 1991
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Handle: RePEc:nbr:nberwo:3697

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  1. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  2. Rotemberg, Julio J & Summers, Lawrence H, 1990. "Inflexible Prices and Procyclical Productivity," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 851-74, November.
  3. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  4. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
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Cited by:
  1. Sbordone, Argia M., 1996. "Cyclical productivity in a model of labor hoarding," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 331-361, October.
  2. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
  3. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-61, July-Aug..
  4. Dennis W. Carlton, 1996. "A Critical Assessment of the Role of Imperfect Competition in Macroeconomics," NBER Working Papers 5782, National Bureau of Economic Research, Inc.
  5. Jesus Felipe & J. S. L. McCombie, 2002. "A Problem with Some Estimations and Interpretations of the Mark-up in Manufacturing Industry," International Review of Applied Economics, Taylor and Francis Journals, vol. 16(2), pages 187-215.
  6. Miguel Jimenez & Domenico J. Marchetti, 2000. "Interpreting the Procyclical Productivity of Manufacturing Sectors: Can We Really Rule Out External Effects:," Econometric Society World Congress 2000 Contributed Papers 1319, Econometric Society.

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