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Investigating the influence of firm characteristics on the ability to exercise market power: A stochastic frontier analysis approach with an application to the iron ore market

Robert Germeshausen, Timo Panke and Heike Wetzel ()

No 14-105, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper empirically analyzes the existence of market power in the global iron ore market during the period 1993-2012 using an innovative Stochastic Frontier Analysis approach introduced by Kumbhakar et al. (2012). In contrast to traditional econometric procedures, this approach allows for the estimation of firm- and time-specific Lerner indices and, therefore, the assessment of the influence of individual firm characteristics on the ability to generate markups. We find that markups on average amount to 20%. Moreover, location and experience are identified to be the most important determinants of the magnitude of firm-specific markups.

Keywords: Estimation of market power; Lerner indices; Stochastic Frontier Analysis; Non-renewable resources (search for similar items in EconPapers)
JEL-codes: D22 L11 L72 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com and nep-eff
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Working Paper: Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power - A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market (2014) Downloads
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