Revealed Growth: A Method for Bounding the Elasticity of Demand with an Application to Assessing the Antitrust Remedy in the Du Pont Decision

53 Pages Posted: 13 Jul 2018

See all articles by Wallace P. Mullin

Wallace P. Mullin

George Washington University - Department of Economics

Christopher M. Snyder

Dartmouth College - Department of Economics; National Bureau of Economic Research

Date Written: June 2018

Abstract

We propose a method for bounding the demand elasticity in growing, homogeneous-product markets that requires only minimal data—market price and quantity over a time span as short as two periods. Reminiscent of revealed-preference arguments using choices over time to bound the shape of indifference curves, we use shifts in the equilibrium over time to bound the shape of the demand curve under the assumption that growing demand curves do not cross. We apply the method to assess the effectiveness of the antitrust remedy in the 1952 Du Pont decision, ordering the incumbent manufacturers to license their patents for commercial plastics. Commentators have suggested that the incumbents may have preserved the monopoly outcome by gaming the licensing contracts. The upper bounds on demand elasticities that we compute are significantly less than 1 in many post-remedy years. Such inelastic demand is inconsistent with monopoly, suggesting the remedy may have been effective.

Suggested Citation

Mullin, Wallace P. and Snyder, Christopher M., Revealed Growth: A Method for Bounding the Elasticity of Demand with an Application to Assessing the Antitrust Remedy in the Du Pont Decision (June 2018). NBER Working Paper No. w24786, Available at SSRN: https://ssrn.com/abstract=3210440

Wallace P. Mullin (Contact Author)

George Washington University - Department of Economics ( email )

2201 G Street NW
Washington, DC 20052
United States

Christopher M. Snyder

Dartmouth College - Department of Economics ( email )

301 Rockefeller Hall
Hanover, NH 03755
United States
(603) 646-0642 (Phone)
(603) 646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~csnyder/

National Bureau of Economic Research ( email )

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