Estimating Price-Cost Markups Under Nonlinear Pricing Competition
This paper provides a structural interpretation to the estimates of the shape and position of nonlinear tariffs. We focus on the evaluation of price-cost margins, and thus we need to identify marginal cost from an equilibrium model of nonlinear pricing competition. We estimate these price-cost margins using quarterly data from the early U.S. cellular telephone industry between 1984 and 1988. Our results indicate that the margins are increased under duopoly, due to a significant reduction in marginal costs. Moreover, we find that the price-cost margins vary over the consumption levels and that low end users are subject to higher price-cost margins than high-end users. The impact of competition further increases the margins in the low-end user segment, relative to high-end users. In that sense the benefits of competition, which are largely due to increased efficiencies, are passed on relatively more to high-end users. We also show that these findings are robust even if one includes a number of observable market demand and cost variables. (JEL: D43, D82, L96) Copyright (c) 2004 The European Economic Association.
Year of publication: |
2004
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Authors: | Miravete, Eugenio J. ; Röller, Lars-Hendrik |
Published in: |
Journal of the European Economic Association. - MIT Press. - Vol. 2.2004, 2-3, p. 526-535
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Publisher: |
MIT Press |
Saved in:
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