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Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power - A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market

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  • Germeshausen, Robert

    () (Center of European Economic Research (ZEW))

  • Panke, Timo

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Wetzel, Heike

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

This paper empirically analyzes the existence of market power in the global iron ore market dur- ing the period 1993-2012 using an innovative Stochastic Frontier Analysis approach introduced by Kumbhakar et al. (2012). In contrast to traditional econometric procedures, this approach allows for the estimation of firm- and time-specific Lerner indices and, therefore, the assessment of the influence of individual firm characteristics on the ability to generate markups. We find that markups on average amount to 20%. Moreover, location and experience are identified to be the most important determinants of the magnitude of firm-specific markups.

Suggested Citation

  • Germeshausen, Robert & Panke, Timo & Wetzel, Heike, 2014. "Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power - A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market," EWI Working Papers 2014-17, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2014_017
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    References listed on IDEAS

    as
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    Cited by:

    1. Lorenczik, Stefan & Panke, Timo, 2016. "Assessing market structures in resource markets — An empirical analysis of the market for metallurgical coal using various equilibrium models," Energy Economics, Elsevier, vol. 59(C), pages 179-187.

    More about this item

    Keywords

    estimation of market power; Lerner indices; Stochastic Frontier Analysis; non-renewable resources;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources

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