Nonparametric Market Supply with Variable Participants

50 Pages Posted: 6 Mar 2019 Last revised: 19 Jun 2019

See all articles by Christopher Chambers

Christopher Chambers

University of California, San Diego (UCSD) - Department of Economics

John Rehbeck

Ohio State University (OSU) - Economics

Date Written: June 17, 2019

Abstract

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

Chambers, Christopher and Rehbeck, John, Nonparametric Market Supply with Variable Participants (June 17, 2019). Available at SSRN: https://ssrn.com/abstract=3332810

Christopher Chambers

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

John Rehbeck (Contact Author)

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

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