Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market

This study proposes a novel econometric approach to estimating market power in homogenous product markets. We use a composed error model to estimate the stochastic part of firms’ strategic pricing equation. This part is formed by two random variables: a traditional error term, which captures random...

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Bibliographic Details
Main Authors:	Orea, Luis, Steinbuks, Jevgenijs
Format:	Journal Article
Language:	en_US
Published:	Western Economic Association International 2017
Subjects:	MARKET POWER RANDOM CONDUCT PARAMETER COMPOSED ERROR MODEL ELECTRICITY CALIFORNIA
Online Access:	http://hdl.handle.net/10986/28545

id	okr-10986-28545
recordtype	oai_dc
spelling	okr-10986-285452021-05-25T10:54:35Z Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market Orea, Luis Steinbuks, Jevgenijs MARKET POWER RANDOM CONDUCT PARAMETER COMPOSED ERROR MODEL ELECTRICITY CALIFORNIA This study proposes a novel econometric approach to estimating market power in homogenous product markets. We use a composed error model to estimate the stochastic part of firms’ strategic pricing equation. This part is formed by two random variables: a traditional error term, which captures random shocks, and a random conduct term, which measures the degree of market power. This approach allows for the conduct parameter to vary flexibly across firms and within firms over time, and avoids ad hoc structural restrictions for identifying firms’ conduct. The empirical application of our approach is based on a well-known California wholesale electricity market dataset, which has been rigorously used to study market power. Our results suggest that realization of market power varies over both time and firms, and reject the assumption of a common or time-invariant conduct parameter. 2017-10-20T20:21:25Z 2017-10-20T20:21:25Z 2017 Journal Article Economic Inquiry 1465-7295 http://hdl.handle.net/10986/28545 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Western Economic Association International Publications & Research :: Journal Article Publications & Research United States
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	MARKET POWER RANDOM CONDUCT PARAMETER COMPOSED ERROR MODEL ELECTRICITY CALIFORNIA
spellingShingle	MARKET POWER RANDOM CONDUCT PARAMETER COMPOSED ERROR MODEL ELECTRICITY CALIFORNIA Orea, Luis Steinbuks, Jevgenijs Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
geographic_facet	United States
description	This study proposes a novel econometric approach to estimating market power in homogenous product markets. We use a composed error model to estimate the stochastic part of firms’ strategic pricing equation. This part is formed by two random variables: a traditional error term, which captures random shocks, and a random conduct term, which measures the degree of market power. This approach allows for the conduct parameter to vary flexibly across firms and within firms over time, and avoids ad hoc structural restrictions for identifying firms’ conduct. The empirical application of our approach is based on a well-known California wholesale electricity market dataset, which has been rigorously used to study market power. Our results suggest that realization of market power varies over both time and firms, and reject the assumption of a common or time-invariant conduct parameter.
format	Journal Article
author	Orea, Luis Steinbuks, Jevgenijs
author_facet	Orea, Luis Steinbuks, Jevgenijs
author_sort	Orea, Luis
title	Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
title_short	Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
title_full	Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
title_fullStr	Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
title_full_unstemmed	Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market
title_sort	estimating market power in homogenous product markets using a composed error model : application to the california electricity market
publisher	Western Economic Association International
publishDate	2017
url	http://hdl.handle.net/10986/28545
_version_	1764467112172060672

Estimating Market Power in Homogenous Product Markets Using a Composed Error Model : Application to the California Electricity Market

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