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Alexandra Prokopenko
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.
Published on Dec 16, 2009
Source: Regional and Sectoral Economic Studies
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
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