Estimating Markups with a Flexible Model of Supply
Department of Economics
University of Wisconsin - Madison
Wednesday, March 7, 2018
Taylor-Hibbard Seminar Room (Rm103)
12:00 pm-1:30 pm
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.