Revealed Growth: A Method for Bounding the Elasticity of Demand with an Application to Assessing the Antitrust Remedy in the Du Pont Decision

Wallace P. Mullin and Christopher Snyder

No 24786, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a method for bounding the demand elasticity in growing, homogeneous-product markets that requires only minimal data—market price and quantity over a time span as short as two periods. Reminiscent of revealed-preference arguments using choices over time to bound the shape of indifference curves, we use shifts in the equilibrium over time to bound the shape of the demand curve under the assumption that growing demand curves do not cross. We apply the method to assess the effectiveness of the antitrust remedy in the 1952 Du Pont decision, ordering the incumbent manufacturers to license their patents for commercial plastics. Commentators have suggested that the incumbents may have preserved the monopoly outcome by gaming the licensing contracts. The upper bounds on demand elasticities that we compute are significantly less than 1 in many post-remedy years. Such inelastic demand is inconsistent with monopoly, suggesting the remedy may have been effective.

JEL-codes: C18 D22 L40 L65 (search for similar items in EconPapers)
Date: 2018-06
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