Lerner index: estimation and the impact of its market structure determinants.
Economia Mexicana › Vol. 15 Nbr. 2, July 2006
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Lerner index: estimation and the impact of its market structure determinants.
Abstract: Using the reasoning that assumes that a pro-cyclical Solow residual is an indication of the presence of market power, the paper estimates the Lerner index. At the same time in which we estimate the Lerner index, we measure the impact of industry structure variables (concentration and imports) on this index. Because we have panel data, we also allow for a change in the impact of these variables across time. For the whole manufacturing sector, we find that concentration and imports have a differing impact on the Lerner index across the business cycle. We find evidence that shows that the Lerner index behaves anticyclically. And we also make the analysis by type of good (durables and non-durables) and find differing impacts of concentration and imports by type of good.
Keywords: Lerner index estimation, concentration, import-penetration, pro-cyclical Solow residual. Resumen: Asumiendo que un residual de Solow procíclico es evidencia de poder de mercado, el trabajo calcula el índice de Lerner. Al mismo tiempo en que se estima el índice de Lerner, se mide el impacto de variables industriales (concentración e importaciones) sobre el índice. Debido a que tenemos datos en panel, también se estima cómo cambia, a través del tiempo, el impacto de estas variables. Se encuentra que la concentración y las importaciones tienen un impacto diferente sobre el índice de Lerner a lo largo del ciclo económico. Asimismo, se encuentra evidencia de que el índice de Lerner se comporta anticíclicamente. También se hace el análisis por tipo de bien (durables y no durables) y se encuentran impactos diferentes de la concentración y las importaciones por tipo de bien. Palabras clave: Estimación del índice de Lerner, concentración, penetración de importaciones, residual de Solow procíclico. JEL Classification: L00, L11, L60. Introduction There is a long tradition in industrial organization that has studied the determinants of price-cost margins (1) A typical model would establish the price cost margin as the dependent variable with concentration indexes, the capital-output ratio and other variables as explanatory variables. In this framework, the price-cost margin is calculated with industry data, assuming that variable cost is an appropriate surrogate for marginal cost. Also, this kind of studies has mainly used cross-section observations. More new approaches use the Solow equation (1959) to detect the presence of market power. In this tradition, Hall (1988) states that the finding of a pro-cyclical Solow residual is an implication of market power. Under the assumption that the true Solow residual is not intrinsically pro-cyclical, Hall has suggested an econometric method that gives us an estimate of the markup. This paper uses data obtained from the Encuesta Industrial Anual, published by INEGI, to pool cross-section and ti...See the full content of this document
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