Biases in Static Oligopoly Models?:Evidence from the California Electricity Market

Christopher Knittel and Dae-Wook Kim
Additional contact information
Dae-Wook Kim: Department of Economics, University of California Davis

No 17, Working Papers from University of California, Davis, Department of Economics

Abstract: Estimating market power is often complicated by a lack of reliable marginal costdata. Instead, policy-makers often rely on summary statistics of the market, thoughtto be correlated with price cost margins? such as concentration ratios or the HHI. Inmany industries, these summary statistics may be only weakly correlated with devia-tions from marginal cost pricing. Beginning with Gollop and Roberts (1979), a numberof empirical studies identify industry competition and marginal cost levels by estimat-ing the ?rms??rst order condition within a conjectural variations framework. Despitethe prevalence of such ?New Empirical Industrial Organization?(NEIO) studies, Corts(1999) illustrates the estimated mark-ups may be biased, since the estimated conjec-tural variations model forces the supply relationship to be a ray through the marginalcost intercept, whereas this need not be true in dynamic games. In this paper, we usedirect measures of marginal cost for the California electricity market to measure theextent to which estimated mark-ups and marginal costs are biased. Our results suggestthat the NEIO technique poorly estimates mark-ups and the sensitivity of marginalcost to cost shifters

Keywords: oligopoly; models (search for similar items in EconPapers)
JEL-codes: C5 L1 L9 (search for similar items in EconPapers)
Pages: 32
Date: 2005-09-13
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.dss.ucdavis.edu/files/44sYwNXJioHQFycvYvsQ4cxp/05-26.pdf (application/pdf)

Related works:
Journal Article: BIASES IN STATIC OLIGOPOLY MODELS? EVIDENCE FROM THE CALIFORNIA ELECTRICITY MARKET* (2006)
Working Paper: Biases in Static Oligopoly Models? Evidence from the California Electricity Market (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cda:wpaper:17

Access Statistics for this paper

More papers in Working Papers from University of California, Davis, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Letters and Science IT Services Unit ().