Measuring Monopoly Power, Revisited

Clement G. Krouse

Review of Industrial Organization, 1998, vol. 13, issue 6, 687-696

Abstract: The accuracy of monopoly power measures derived from case study econometric models has been questioned recently by Hyde and Perloff (1995) and Boyer (1996). Using the standard industry-form of that model, Hyde and Perloff show that the parameter estimates associated with monopoly power are highly sensitive to mis-specifications of the demand and supply functional forms. Boyer's criticism is made in principle: he reproves the model for generally failing to. ''... capture the diversity and complexity of oligopoly ... '' in respect to entry, product differentiation, fixity of capital, capital adjustment costs, dynamic demand linkages, and variations in monopoly power over time and in the cross-section of firms. While these several criticisms might appear to point at inherent weaknesses in the case study econometric approach, it is here argued that the problem lies in the usual empirical practice.

Date: 1998
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