David Genesove

Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914

We explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior. Direct measures of marginal cost and conduct, indicating small market power, serve as benchmarks. The more competitive models yield better cost estimates. The best cost estimates occur when conduct is estimated as a free parameter, which in turn only slightly underestimates our direct measure. It also tracks the decline in market power accompanying the industrys structural changes. The methodology is largely validated, although partial cost information can improve its predictive power. Conclusions are robust to demand function.

The Nominal Rigidity of Apartment Rents

This paper contributes to the empirical literature on price stickiness by documenting a high rate of nominal rigidity among housing rents in the United States between 1974 and 1981. Of the units studied, 29 had no change in nominal rents from year to year. The incidence was much higher (a) in years and cities with a low median nominal rent growth rate, and among (b) units whose tenants continued from the previous year and (c) units in small buildings. A little less than half of the nominal rigidity can be ascribed to grid pricing. Possible explanations, as well as the likely distributive and allocative implications, are discussed.

Intellectual Property and Standardization Committee Participation in the Us Modem Industry

The authors take a preliminary look at the interaction between patenting and standardization committee participation in the US modem industry. Both involve a much wider set of firms than the downstream modem manufacturers themselves. Not surprisingly, the two activities are highly correlated across firms. Using five-year periods, Granger causality tests show that while patenting is predicted by participation in earlier standardization meetings, meetings participation is not predicted by earlier patenting. The authors interpret these results as reflecting the timing of standard setting relative to innovation.

Seasonality and the Effect of Advertising on Price

This paper lays out an econometric strategy for estimating the effect of advertising on prices, by exploiting seasonal demand and imperfect targeting. We present two simple models of duopoly where firms choose prices and advertising. In times of high demand for the product, a larger fraction of consumers who obtain an advertisements are interested in the product, and so the effectiveness of advertising is greater, and firms advertise more. We use this to justify IV estimation of price on log advertising (and trend), in which monthly dummies are used as instruments. Using Israeli data we find a sufficiently large degree of advertising seasonality to justify estimation by the LIML or Fuller-k method. Among those industries, only a few exhibit a significant response of price to advertising. The interpretation of these results depends on the nature of the marginal cost curve: under constant returns to scale a negative response is consistent with informative advertising, and a positive with brand enhancing advertising. Under sufficiently increasing returns to scale, informative advertising will lead to a price increase, yet for some of the products we are able choose among these two types of advertising based on knowledge of the likely cost structure of the industry. Nevertheless, in almost all cases, significant and insignificant, the magnitude of the measured response is very small.