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Industrial Organization I

Industrial Organization I. Market Power O ligopoly (homogeneous). Conjectural variation: Elasticity. How is this done in practice?. Estimate supply and demand and infer from estimated parameters Taking logs:. Supply function (FOC optimality). Estimated constant.

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Industrial Organization I

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  1. Industrial Organization I Market Power Oligopoly (homogeneous)

  2. Conjectural variation: Elasticity

  3. How is this done in practice? • Estimate supply and demand and infer from estimated parameters • Taking logs: Supply function (FOC optimality) Estimated constant Parameter of interest Demand estimate

  4. Conjectural Variation: Example TESTING FOR IMPERFECT COMPETITION AT THE FULTON FISH MARKETKathryn Graddy Rand Journal of EconomicsVol. 26, No. 1, Spring 1995

  5. The Fulton Fish Market – Background • Fulton is the largest market for fresh fish in the US, located in Manhattan near Brooklyn Bridge. • Open-air structure where approx. 35 dealers rent stalls. • Open 3am-9am on Monday – Friday; closed on Saturday & Sunday • 200 varieties of fish and seafood sold (not all dealers carry all types of fish)

  6. The Fulton Fish Market – Background • Fulton is the largest market for fresh fish in the US, located in Manhattan near Brooklyn Bridge. • Open- air structure where approx. 35 dealers rent stalls. • Open 3am-9am on Monday – Friday; closed on Saturday & Sunday • 200 varieties of fish and seafood sold (not all dealers carry all types of fish)

  7. The Fulton Fish Market – Background • Small quantities not sold. • Each dealer free to charge different prices to different customers. • Fish begins arriving at the market at midnight • Customers choose their fish; then loaders place it onto customer’s truck. • The market has a history of criminal activities .

  8. The Fulton Fish Market – Background • Fulton is the largest market for fresh fish in the US, located in Manhattan near Brooklyn Bridge. • Open- air structure where approx. 35 dealers rent stalls. • Open 3am-9am on Monday – Friday; closed on Saturday & Sunday • 200 varieties of fish and seafood sold (not all dealers carry all types of fish)

  9. The Question • Asian and white customers account for about 90% of transacted volume. • Empirical regularity: Asian buyers are charged, on average, less than white buyers • Why does price discrimination occur? • Homogeneous product • Many buyers, “many sellers” • If customer does not agree she can go to next seller • Let’s test the existence of market power

  10. The Data • Researcher limited to: • Data from a single seller • One type of fish • Few observations (<500) over a small period of time (several weeks) • Available data: • Price and quantity • Wind speed at sea • Wave length

  11. The Empirical Approach This is our λ (1) (2) • Demand: • Supply (FOC): where

  12. The Empirical Approach (1) (2) Demand estimates Estimated parameter • Supply (FOC): • Differencing (2) and (1), and assuming MC’s only differ in their error term • And rearranging terms: • Key assumption: θ is equal across two segments

  13. Identification • Demand instruments: supply shocks (wind speed & wave length)

  14. Results Not statistically significant

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