Productivity, Market Power and Capacity Utilization When Spot Markets are Complete

27 Pages Posted: 11 Aug 2010 Last revised: 10 Aug 2022

See all articles by Benjamin Eden

Benjamin Eden

Vanderbilt University

Zvi Griliches

affiliation not provided to SSRN

Date Written: May 1991

Abstract

Our test of price-taking behavior looks at the choice of capacity rather than the choice of output. It is motivated by a complete spot markets model in which goods are distinguished by the selling probabilities in addition to other characteristics. When output is explained by total man-hours and a capacity utilization proxy, the coefficient of the first variable is the elasticity of capacity with respect to fixed labor. Under competition and risk neutrality this coefficient is equal to an average labor share. We use this observation to interpret Abbot-Griliches-Hausman's regressions and to argue that once the capacity utilization proxy is included in the regression, Hall's data at the manufacturing level fail to reject the joint hypothesis of competition and risk neutrality. It is also argued that the coefficient of total man-hours does not tell us anything about monopoly power once the capacity utilization proxy is omitted from the regression.

Suggested Citation

Eden, Benjamin and Griliches, Zvi, Productivity, Market Power and Capacity Utilization When Spot Markets are Complete (May 1991). NBER Working Paper No. w3697, Available at SSRN: https://ssrn.com/abstract=1656713

Benjamin Eden (Contact Author)

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

Zvi Griliches

affiliation not provided to SSRN

No Address Available

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