IDEAS home Printed from https://ideas.repec.org/p/wzb/wzebiv/fsiv97-2.html
   My bibliography  Save this paper

Testing for Monopoly Power when Products are Differentiated in Quality

Author

Listed:
  • Frank Verboben

Abstract

This paper proposes a reduced form approach to identify the presence of monopoly power in oligopolies characterized by vertical product differentiation. In a fairly general model I derive an explicit solution for the reduced form pricing equations under the hypothesis that firms behave collusively. The central comparative statics result states that a product's price depends only on its own quality and not on the quality of its competitors. I propose econometric tests implied by this result, requiring only the data used in popular hedonic studies (prices and physical characteristics). The tests are applied to the market for spreadsheets in the U.S. (1986-1991) and to the market for "engine variants" in the 1990 French car market. The empirical results are encouraging, because they are consistent with some a priori evidence on these industries. Nevertheless, to widen to the scope for economic applications, some further generalizations of the model are called for. ZUSAMMENFASSUNG - (Überprüfung der Monopolmacht bei qualitativ differenzierten Produkten) In dem Beitrag wird ein reduzierter Gleichungsansatz vorgeschlagen, um Monopolmacht auf Oligopolmärkten mit vertikaler Produktdifferenzierung festzustellen. In einem ziemlich allgemeinen Modell wird die explizite Lösung für die reduzierte Form der Preisgleichung unter der Hypothese abgeleitet, daß die Unternehmen sich kollusiv verhalten. Das zentrale komparativ-statische Ergebnis besagt, daß der Produktpreis nur von der eigenen Qualität und nicht der Qualität der Konkurrenten abhängt. Es wird ein ökonometrischer Test vorgeschlagen, der dieses Ergebnis berücksichtigt und sich nur auf Daten stützt, die in üblichen hedonistischen Untersuchungen mit Preisen und Produktmerkmalen verwendet werden. Der Test wird auf den Markt für Tabellenkalkulations-Programme in den USA (1986-1991) angewendet und auf den Markt für "Motorvarianten" als Teilmarkt des französischen Automobilmarkts (1990). Die empirischen Ergebnisse sind vielversprechend, weil sie mit a priori Annahmen über diese Industriezweige konsistent sind. Dennoch erscheint ein gewisse Verallgemeinerung des Modells angebracht zu sein, um sein ökonomisches Anwendungsspektrum zu erweitern.

Suggested Citation

  • Frank Verboben, 1997. "Testing for Monopoly Power when Products are Differentiated in Quality," CIG Working Papers FS IV 97-02, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  • Handle: RePEc:wzb:wzebiv:fsiv97-2
    as

    Download full text from publisher

    File URL: http://skylla.wz-berlin.de/pdf/1997/iv97-2.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Neil Gandal, 1994. "Hedonic Price Indexes for Spreadsheets and an Empirical Test for Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 160-170, Spring.
    2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    3. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    6. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Evelyn Vezza, 2004. "Poder de Mercado en las Profesiones Autorreguladas: El Desempeño Médico en Argentina," Department of Economics, Working Papers 056, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    2. Evelyn Vezza, 2004. "Poder de Mercado en las Profesiones Autorreguladas: El Desempeño Médico en Argentina," CEDLAS, Working Papers 0016, CEDLAS, Universidad Nacional de La Plata.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wzb:wzebiv:fsiv97-2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Rontganger). General contact details of provider: http://edirc.repec.org/data/cicwzde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.