Testing for monopoly power when products are differentiated in quality

Arbeitspapier

This paper proposes a reduced form approach to identify the presence of monopoly power in oligopolies characterized by vertical product differentiation. In a fairly general model I derive an explicit solution for the reduced form pricing equations under the hypothesis that firms behave collusively. The central comparative statics result states that a product's price depends only on its own quality and not on the quality of its competitors. I propose econometric tests implied by this result, requiring only the data used in popular hedonic studies (prices and physical characteristics). The tests are applied to the market for spreadsheets in the U.S. (1986-1991) and to the market for engine variants in the 1990 French car market. The empirical results are encouraging, because they are consistent with some a priori evidence on these industries. Nevertheless, to widen to the scope for economic applications, some further generalizations of the model are called for.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WZB Discussion Paper ; No. FS IV 97-2

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Verboven, Frank
• Event: Veröffentlichung
• (who): Wissenschaftszentrum Berlin für Sozialforschung (WZB)
• (where): Berlin
• (when): 1997

Further information

• Handle: http://hdl.handle.net/10419/51199
• Last update: 10.03.2025, 11:41 AM CET