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The Panzar–Rosse H Statistic and Monopoly. Issues on its Use as a Market Power Measure

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  • Sanchez-Cartas Juan Manuel

    (Universidad Politécnica de Madrid, Centre for Technology Innovation (CAIT), Campus de Montegancedo, Madrid, Spain)

Abstract

This note emphasizes some flaws of the Panzar–Rosse H statistic to address market power. First, I show that it is more related to the pass-through rate than to a market power measure, which implies reconsidering its interpretation and use. Second, I show that the inclusion of other strategic variables rather than prices or quantities may lead to contradictory predictions about market power. Therefore, competition authorities should refrain from using the H statistic to rule out significant market power because it is not a well-behaved measure of the degree of competition.

Suggested Citation

  • Sanchez-Cartas Juan Manuel, 2020. "The Panzar–Rosse H Statistic and Monopoly. Issues on its Use as a Market Power Measure," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(4), pages 1-11, October.
    • Handle: RePEc:bpj:bejeap:v:20:y:2020:i:4:p:11:n:6
    DOI: 10.1515/bejeap-2020-0193
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    References listed on IDEAS

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    1. Segundo Camino-Mogro & Grace Armijos-Bravo, 2018. "Assessing competition in the private banking sector in Ecuador: an econometric approach with the Panzar-Rosse model," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 41(117), pages 225240-2252, Noviembre.
    2. Abu Hanifa Md Noman & Chan Sok Gee & Che Ruhana Isa, 2017. "Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis," PLOS ONE, Public Library of Science, vol. 12(5), pages 1-27, May.
    3. Sherrill Shaffer, 2002. "Conduct in a Banking Monopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(3), pages 221-238, May.
    4. Shaffer, Sherrill & Spierdijk, Laura, 2015. "The Panzar–Rosse revenue test and market power in banking," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 340-347.
    5. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    6. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Competition and cost pass-through in differentiated oligopolies," MPRA Paper 25931, University Library of Munich, Germany.
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    More about this item

    Keywords

    H statistic; market power; Panzar–Rosse; pass-through rate; L11; L12; L41;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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