Testing for Monopoly Power when Products are Differentiated in Quality

F.L. Verboven

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    This paper proposes a reduced form approach toempirically identify the presence of monopoly power in oligopolies characterized by vertical product di erentia-tion. In a fairly general model I derive the reduced form pricing equation under the hypothesis that rms collude by maximizing their joint pro t. A central comparative statics result states that a product's price depends only on its own quality and not on the quality ofits competitors. I propose simple tests implied by this result, requiring data only on the prices and the physical characteristics of the products. The tests are applied to the market for spreadsheets inthe US (1986-1991) and to the market for `engine variants' in the 1990 French car market. The empirical results are promising, but also indicate the need for further generalizations of the model.
    Original languageEnglish
    Publication statusPublished - 1995

    Publication series

    NameCentER Discussion Paper


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