Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, February 16, 2010

Are There Any Cournot Industries?

Posted by D. Daniel Sokol

David Flath (Institute of Social and Economic Research, Osaka University) asks Are There Any Cournot Industries?

ABSTRACT: For 70 Japanese manufacturing industries, I test the simple Cournot hypothesis of proportionality between industry price-cost margin and Herfindahl index against the non-nested alternative that the industry price-cost margin remains constant in the face of varying Herfindahl index, as it would under a simple product differentiated Bertrand framework. I then test each of these against the alternative hybrid specification that nests both of them, and from the pairwise tests, compute likelihoods of each specification. The simple Cournot specification is the most likely for five of the industries, the simple Bertrand specification for 35, and the hybrid specification for 30.

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