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Measuring Market Power in U.S. Industry

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Abstract

Non-competitive conduct can be assessed by estimating the size of the markup or Lerner index achieves in a market. The markup implies a price elasticity of demand faced by the representative firm. For a given markup, non-competitive conduct that is insensitive to the value of the monopoly. To implement this measure, both the firm's and the market elasticities of demand must be estimated. Hall shows how to estimate the markup, and hence the elasticity faced by the firm, from the cyclical behavior of productivity. To estimate the market elasticity, an instrumental variables procedure exploiting a covariance restriction between productivity shocks and demand shocks is used. Results for broad sectors of private industry and for non-durable manufacturing industries display a wide range of monopoly power.

Suggested Citation

  • Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," Cowles Foundation Discussion Papers 828, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:828
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    Cited by:

    1. Huang, Kevin X.D. & Meng, Qinglai & Xue, Jianpo, 2009. "Is forward-looking inflation targeting destabilizing? The role of policy's response to current output under endogenous investment," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 409-430, February.
    2. Junius, Karsten, 1997. "Economies of scale: A survey of the empirical literature," Kiel Working Papers 813, Kiel Institute for the World Economy (IfW).
    3. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    4. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters,in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312 National Bureau of Economic Research, Inc.
    5. Tybout, James R., 1991. "Researching the trade - productivity link : new directions," Policy Research Working Paper Series 638, The World Bank.
    6. Dobrinsky, Rumen & Korosi, Gabor & Markov, Nikolay & Halpern, Laszlo, 2006. "Price markups and returns to scale in imperfect markets: Bulgaria and Hungary," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 92-110, March.
    7. Rezitis, Anthony N. & Kalantizi, Maria A., 2012. "Investigating market structure of the Greek food and beverages manufacturing industry: A Hall-Roeger approach," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 13(1), January.
    8. Panizza, Ugo & Presbitero, Andrea F., 2014. "Public debt and economic growth: Is there a causal effect?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 21-41.
    9. Foroutan, Faezeh, 1991. "Foreign trade and its relation to competition and productivity in Turkish industry," Policy Research Working Paper Series 604, The World Bank.
    10. Catherine J. Morrison, 1989. "Markup Behavior in Durable and Nondurable Manufacturing: A production Theory Approach," NBER Working Papers 2941, National Bureau of Economic Research, Inc.
    11. Alejandro Castañeda Sabido, 1998. "Measuring the degree of collusive conduct in the Mexican manufacturing sector," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 13(2), pages 157-169.
    12. Winther, K. Tobias, 2008. "Analyzing new profit opportunities: a guide to making business projects financially successful," MPRA Paper 11346, University Library of Munich, Germany.
    13. Boone, Jan, 2000. "Competition," CEPR Discussion Papers 2636, C.E.P.R. Discussion Papers.
    14. Kevin X. D. Huang & Zheng Liu, 2001. "Input-Output Structure and Nominal Staggering: The Persistence Problem Revisited," Cahiers de recherche CREFE / CREFE Working Papers 145, CREFE, Université du Québec à Montréal.
    15. Michael A. Kouparitsas, 1996. "North-South financial integration and business cycles," Working Paper Series, Macroeconomic Issues WP-96-10, Federal Reserve Bank of Chicago.
    16. Sara Amoroso & Peter M. Kort & Bertrand Melenberg & Joseph Plasmans & Mark Vancauteren, 2010. "Firm Level Productivity under Imperfect Competition in Output and Labor Markets," CESifo Working Paper Series 3082, CESifo Group Munich.
    17. Sascha A. Weber & Sven M. Anders, 2007. "Price rigidity and market power in German retailing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 737-749.
    18. Hindriks, F.A. & Nieuwenhuijsen, H.R. & de Wit, G., 2000. "Comparative Advantages in Estimating Markups," Papers 0003/e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
    19. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
    20. Holtz-Eakin, Douglas & Lovely, Mary E., 1996. "Technological linkages, market structure, and production policies," Journal of Public Economics, Elsevier, vol. 61(1), pages 73-86, July.
    21. Nicoletta Batini & Brian Jackson & Stephen Nickell, 2002. "The Pricing Behaviour of UK Firms," Discussion Papers 09, Monetary Policy Committee Unit, Bank of England.
    22. Goo, Moon Mo, 1997. "The measurement of market power: short-run, long-run, and dynamic adjustment models," ISU General Staff Papers 1997010108000012985, Iowa State University, Department of Economics.
    23. Rumen Dobrinsky & Gabor Korosi & Nikolay Markov & Laszlo Halpern, 2004. "Firms’ Price Markups and Returns to Scale in Imperfect Markets - Bulgaria and Hungary," IEHAS Discussion Papers 0412, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    24. Michael A. Kouparitsas, 1996. "North-South business cycles," Working Paper Series, Macroeconomic Issues WP-96-9, Federal Reserve Bank of Chicago.

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