Coping With Data Limitations When Measuring Industry Oligopoly Power in a Developing Country

Report

Malcolm H. Kerr Carnegie Middle East Center

Coping With Data Limitations When Measuring Industry Oligopoly Power in a Developing Country

Researchers' enthusiasm for estimating industry oligopoly power in developing countries is often hampered by a lack of available data. Using firm optimizing behavior can help solve this problem.

By Lahcen Achy, Azzeddine Azzam, Khalid Sekkat

Published on Dec 16, 2009

Source: Regional and Sectoral Economic Studies

Researchers' enthusiasm for estimating industry oligopoly power in developing countries is often hampered by a lack of available data. Even when available, data are often incomplete, inconsistent, too aggregated, and almost always collected by government agencies for purposes different from those of the researcher.

As a consequence, a researcher addressing the issue of oligopoly power has four options:

Ignore the issue
Conduct a descriptive industry study
Develop an elaborate structural econometric oligopoly model and strip it to suit available data
Estimate ad hoc regressions using available data
Address the issue by generating theoretical predictions from a stylized theoretical model of oligopoly.

None of the options deliver estimates based on explicit theoretical restrictions implied by optimizing behavior of imperfectly competitive firms.

An alternative option, which this paper suggests, is to use the theoretical restrictions implied by firm optimizing behavior to specify and make inference about market power in a conjectural elasticity (CE) model when data availability is a problem. The novel feature of the model is that it is empirically implemented with observations on only two variables likely to be found in most industry statistics collected for tax purposes by governments in developing countries: Sales revenue and payroll (the wage bill).

About the Authors

Lahcen Achy

Former Nonresident Senior Associate, Middle East Center

Achy is an economist with expertise in development, institutional economics, trade, and labor and a focus on the Middle East and North Africa.

Azzeddine Azzam

Khalid Sekkat

Egypt Gulf Levant Maghreb Economy

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

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