Wednesday, September 6, 2017
Daniel P. O'Brien, Bates White Economic Consulting discusses Price-Concentration Analysis: Ending the Myth, and Moving Forward.
ABSTRACT: Price-concentration studies have a long history empirical industrial organization, including prominent recent examples. Although their robustness has been questioned for many years, a casual review of the literature leaves the impression that the main issue is the endogeneity of the concentration measure, and that once this is addressed, the problem is solved. This perspective ignores the bigger issue: the equations estimated in most price-concentration studies lack an economic foundation. Critiques in Economic Handbooks allude to the foundational issue, but the IO literature has not explored it in depth or discussed the implications for interpreting empirical results. This paper boils the problem down to the core issue, tackles interpretation, and discusses the way forward.