Estimation of Cost Efficiency Without Cost Data
35 Pages Posted: 22 May 2015 Last revised: 12 Oct 2017
Date Written: October 11, 2017
One of the advantages of conduct parameter games is that they enable estimation of market power without total cost data. In line with this, we develop a conduct parameter based model to estimate the firm specific "marginal cost efficiency" and conduct without using total cost data. The marginal cost efficiency is an alternative measure of efficiency that is based on deadweight loss. We illustrate our methodology by estimating firm-route-quarter specific conducts and marginal cost efficiencies of U.S. airlines for Chicago based routes without using route-level total cost data.
Keywords: Market power; Conduct parameter; Efficiency; Stochastic frontier analysis; Airlines
JEL Classification: C13, L13, L93
Suggested Citation: Suggested Citation