Nonparametric Market Supply with Variable Participants
50 Pages Posted: 6 Mar 2019 Last revised: 19 Jun 2019
Date Written: June 17, 2019
Research estimating market supply often focuses on parametric models. In this paper, we study a non-parametric approach to market supply. We characterize the necessary and sufficient conditions of profit maximization for aggregate market behavior when participants on the supply side vary and individual firm supply is unobservable. We use the conditions on market behavior to examine whether the United States cement industry could have been profit maximizing between 1993 and 1998. We find that the U.S. cement industry always rejects profit maximization when firms are required to make weakly positive profits. We also provide a measure of necessary profit loss to measure how far the industry is from profit maximization. We find errors from profit maximization of $755.1 million for conditions that most represent the cement industry.
Keywords: profit maximization, markets, cement, revealed preference
JEL Classification: D21, D22, D40
Suggested Citation: Suggested Citation