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BIASES IN STATIC OLIGOPOLY MODELS? EVIDENCE FROM THE CALIFORNIA ELECTRICITY MARKET *
Author(s) -
KIM DAEWOOK,
KNITTEL CHRISTOPHER R.
Publication year - 2006
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2006.00296.x
Subject(s) - marginal cost , market power , oligopoly , economics , econometrics , electricity market , competition (biology) , electricity , measure (data warehouse) , microeconomics , order (exchange) , sensitivity (control systems) , computer science , cournot competition , engineering , ecology , finance , database , electrical engineering , biology , monopoly , electronic engineering
Estimating market power is often complicated by a lack of reliable marginal cost data. A number of empirical studies identify industry competition and marginal cost levels by estimating the firms' first order condition within a conjectural variations framework. Few studies, however, have analyzed the accuracy of this technique. In this paper, we use direct measures of marginal cost for the California electricity market to measure the extent to which estimated mark‐ups and marginal costs are biased. Our results suggest that the technique poorly estimates mark‐ups and the sensitivity of marginal cost to cost shifters.