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Estimating market power using a composed error model
Author(s) -
Karakaplan Mustafa U.,
Kutlu Levent
Publication year - 2019
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12195
Subject(s) - generalization , econometrics , term (time) , context (archaeology) , economics , estimation , error correction model , relation (database) , frontier , maximum likelihood , power (physics) , mathematics , mathematical economics , computer science , statistics , cointegration , physics , history , mathematical analysis , paleontology , management , archaeology , quantum mechanics , database , biology
We present a maximum likelihood based composed error model to estimate market powers of firms. In our model, the stochastic part of the supply relation includes two random components: the conventional two‐sided error term and a random term, which is capturing firm‐specific conducts. Moreover, we provide a generalization of scaled Stevenson stochastic frontier model in the context of doubly truncated normal distributions. We estimate the market powers of Chicago based airlines as an empirical example that is showing the applicability of our estimation procedure.