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Prodoctivity, Market Power and Capacity Utilization when Spot Market Are Complete

  • Eden, B.
  • Griliches, Z.

Our test of price-taking behavior looks at the choice of capacity rather than the choice of output. It is motivated by a complete spot markets model in which goods are distinguished by the selling probabilities in addition to other characteristics. When output is explained by total man-hours and a capacity utilization proxy, the coefficient of the first variable is the elasticity of capacity with respect to fixed labor. Under competition and risk neutrality this coefficient is equal to an average labor share. We use this observation to interpret Abbot-Griliches-Hausman's regressions and to argue that once the capacity utilization proxy is included in the regression, Hall's data at the manufacturing level fail to reject the joint hypothesis of competition and risk neutrality. It is also argued that the coefficient of total man-hours does not tell us anything about monopoly power once the capacity utilization proxy is omitted from the regression.

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Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 91-06.

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Length: 26 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:uia:iowaec:91-06
Contact details of provider: Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
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  1. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  2. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  3. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  4. Rotemberg, Julio J & Summers, Lawrence H, 1990. "Inflexible Prices and Procyclical Productivity," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 851-74, November.
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