Antitrust & Competition Policy Blog

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

Friday, February 8, 2019

Estimate Markups with a Flexible Supply Model

Ying Fan (University of Michigan); Christopher Sullivan Estimate Markups with a Flexible Supply Model.

Abstract: This paper provides a theoretically founded empirical model to simultaneously investigate firm competition and estimate markups. The model nests the standard oligopoly model, but also allows for firm collusion. Different from conduct parameter models, our model is consistent with a series of theoretical models. We show that a nonparametric marginal cost function can be identified, which gives an estimate of markups. Through Monte Carlo simulations, we show that our approach works better in estimating markups than a standard oligopoly model or a conduct parameter model.

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