Testing firm conduct

Marco Duarte; Lorenzo Magnolfi; Mikkel Sølvsten; Christopher Sullivan

doi:10.3982/QE2319

Testing firm conduct

Marco Duarte, Lorenzo Magnolfi, Mikkel Sølvsten^*, Christopher Sullivan

^*Corresponding author af dette arbejde

Institut for Økonomi

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

4 Citationer (Scopus)

Abstract

Evaluating policy in imperfectly competitive markets requires understanding firm behavior. While researchers test conduct via model selection and assessment, we present the advantages of Rivers and Vuong (2002) (RV) model selection under misspecification. However, degeneracy of RV invalidates inference. With a novel definition of weak instruments for testing, we connect degeneracy to instrument strength, derive weak instrument properties of RV, and provide a diagnostic for weak instruments by extending the framework of Stock and Yogo (2005) to model selection. We test vertical conduct (Villas-Boas (2007)) using common instrument sets. Some are weak, providing no power. Strong instruments support manufacturers setting retail prices.

Originalsprog	Engelsk
Tidsskrift	Quantitative Economics
Vol/bind	15
Nummer	3
Sider (fra-til)	571-606
Antal sider	36
ISSN	1759-7323
DOI	https://doi.org/10.3982/QE2319
Status	Udgivet - jul. 2024

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AB - Evaluating policy in imperfectly competitive markets requires understanding firm behavior. While researchers test conduct via model selection and assessment, we present the advantages of Rivers and Vuong (2002) (RV) model selection under misspecification. However, degeneracy of RV invalidates inference. With a novel definition of weak instruments for testing, we connect degeneracy to instrument strength, derive weak instrument properties of RV, and provide a diagnostic for weak instruments by extending the framework of Stock and Yogo (2005) to model selection. We test vertical conduct (Villas-Boas (2007)) using common instrument sets. Some are weak, providing no power. Strong instruments support manufacturers setting retail prices.

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KW - L21

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Testing firm conduct

Abstract

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