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

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  • van Benthem, Arthur
  • Pless, Jacquelyn

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.

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  • van Benthem, Arthur & Pless, Jacquelyn, 2017. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," CEPR Discussion Papers 11908, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11908
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    More about this item

    Keywords

    Solar subsidy; Pass-through; Over-shifting; Demand curvature; market power; Third-party ownership; Buy vs. lease;
    All these keywords.

    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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