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

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  • Jacquelyn Pless
  • Arthur A. van Benthem

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. Speci cally, we estimate the pass-through ofsolar subsidies to solar system prices using rich micro-level transaction and subsidy data fromCalifornia. 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 competitiveby ruling out alternative explanations for over-shifting, and reinforce this conclusion with a testof solar demand curvature. This procedure can serve to detect market power beyond the solarmarket.

Suggested Citation

  • Jacquelyn Pless & Arthur A. van Benthem, 2018. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," OxCarre Working Papers 212, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:212
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    Cited by:

    1. Guo, B. & Castagneto Gissey, G., 2019. "Cost Pass-through in the British Wholesale Electricity Market: Implications of Brexit and the ETS reform," Cambridge Working Papers in Economics 1997, Faculty of Economics, University of Cambridge.
    2. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    3. Naylor, Jamie & Deaton, B. James & Ker, Alan, 2020. "Assessing the effect of food retail subsidies on the price of food in remote Indigenous communities in Canada," Food Policy, Elsevier, vol. 93(C).
    4. à lvarez-Albelo, Carmen D. & Hernández-Martín, Raúl & Padrón-Fumero, Noemi, 2020. "The effects on tourism of airfare subsidies for residents: The key role of packaging strategies," Journal of Air Transport Management, Elsevier, vol. 84(C).
    5. Bowei Guo & Giorgio Castagneto Gissey, 2019. "Cost Pass-through in the British Wholesale Electricity Market: Implications of Brexit and the ETS reform," Working Papers EPRG1937, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Dong, Changgui & Zhou, Runmin & Li, Jiaying, 2021. "Rushing for subsidies: The impact of feed-in tariffs on solar photovoltaic capacity development in China," Applied Energy, Elsevier, vol. 281(C).
    7. Li, Yumin, 2018. "Incentive pass-through in the California Solar Initiative – An analysis based on third-party contracts," Energy Policy, Elsevier, vol. 121(C), pages 534-541.
    8. Orley Ashenfelter & Stepan Jurajda Jurajda, 2021. "Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald's Restaurants," Working Papers 646, Princeton University, Department of Economics, Industrial Relations Section..
    9. Reeves, D.C. & Rai, V., 2018. "Strike while the rebate is hot: Savvy consumers and strategic technology adoption timing," Energy Policy, Elsevier, vol. 121(C), pages 325-335.
    10. Evert Reins, 2021. "Seductive subsidies? An analysis of second-degree moral hazard in the context of solar systems," IRENE Working Papers 21-03, IRENE Institute of Economic Research.

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    More about this item

    Keywords

    solar subsidy; pass-through; over-shifting; demand curvature; market power; third-;
    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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