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Estimate Markups with a Flexible Supply Model

Author

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  • Ying Fan

    (University of Michigan)

  • Christopher Sullivan

Abstract

This paper provides a theoretically founded empirical model to simultaneously investigate firm competition and estimate markups. The model nests the standard oligopoly model, but also allows for firm collusion. Different from conduct parameter models, our model is consistent with a series of theoretical models. We show that a nonparametric marginal cost function can be identified, which gives an estimate of markups. Through Monte Carlo simulations, we show that our approach works better in estimating markups than a standard oligopoly model or a conduct parameter model.

Suggested Citation

  • Ying Fan & Christopher Sullivan, 2018. "Estimate Markups with a Flexible Supply Model," 2018 Meeting Papers 764, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:764
    as

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    References listed on IDEAS

    as
    1. K. Sudhir, 2001. "Competitive Pricing Behavior in the Auto Market: A Structural Analysis," Marketing Science, INFORMS, vol. 20(1), pages 42-60, January.
    2. Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.
    3. K. Sudhir, 2001. "Competitive Pricing Behavior in the US Auto Market: A Structural Analysis," Yale School of Management Working Papers ysm228, Yale School of Management.
    4. Beomjoon Shim & Ahmed Khwaja, 2017. "The Collusive Effect of Multimarket Contact on Prices: Evidence from Retail Lumber Markets," 2017 Meeting Papers 593, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

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