This paper develops techniques for empirically analyzing demand and supply in differentiated products markets and then applies these techniques to analyze equilibrium in the U.S. automobile industry. Our primary goal is to present a framework which enables one to obtain estimates of demand and cost parameters for a class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. When we apply the tech- niques developed here to the U.S. automobile market, we obtain cost and demand parameters for (essentially) all models marketed over a twenty year period.

/pdf/automobile-prices-in-market-equilibrium-1w0xnf91hi.pdf

Automobile prices in market equilibrium

Technological change and deregulation have caused a major restructuring of the telecommunications equipment industry over the last two decades. Our empirical focus is on estimating the parameters of a production function for the equipment industry, and then using those estimates to analyze the evolution of plant-level productivity. The restructuring involved significant entry and exit and large changes in the sizes of incumbents. Firms' choices on whether to liquidate, and on input quantities should they continue, depended on their productivity. This generates a selection and a simultaneity problem when estimating production functions. Our theoretical focus is on providing an estimation algorithm which takes explicit account of these issues. We find that our algorithm produces markedly different and more plausible estimates of production function coefficients than do traditional estimation procedures. Using our estimates we find increases in the rate of aggregate productivity growth after deregulation. Since we have plant-level data we can introduce indices which delve deeper into how this productivity growth occurred. These indices indicate that productivity increases were primarily a result of a reallocation of capital towards more productive establishments.

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The Dynamics of Productivity in the Telecommunications Equipment Industry

This article considers the problem of "supply-and-demand" analysis on a cross section of oligopoly markets with differentiated products. The primary methodology is to assume that demand can be described by a discrete-choice model and that prices are endogenously determined by price-setting firms. In contrast to some previous empirical work, the techniques explicitly allow for the possibility that prices are correlated with unobserved demand factors in the cross section of markets. The article proposes estimation by "inverting" the market-share equation to find the implied mean levels of utility for each good. This method allows for estimation by traditional instrumental variables techniques.

Estimating Discrete-Choice Models of Product Differentiation

This paper provides a model of firm and industry dynamics that allows for entry, exit, and firm-specific uncertainty generating variability in the fortunes of firms. It focuses on the impact of uncertainty arising from investment in research and exploration. It analyzes the behavior of individual firms in an evolving market place and derives optimal policies, including exit. Then it adds an entry process and aggregates the optimal behavior of all firms, including potential entrants, into a rational expectations Markov-perfect industry equilibrium and proves ergodicity of the equilibrium process. Numerical examples illustrate the detailed characteristics of the stochastic process generating industry structures.

Markov-Perfect Industry Dynamics: A Framework for Empirical Work

Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices -- and therefore over which producers have some direct control, at least in theory -- as well as from producers' external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)

/pdf/what-determines-productivity-2hh0dpac5x.pdf

What Determines Productivity

This paper considers two models for analyzing the dynamics of firm behavior that allow for heterogeneity among firms, idiosyncratic (or firm specific) sources of uncertainty, and discrete outcomes (exit and/or entry). Models with these characteristics are needed for the structural econometric analysis of several economic phenomena, including the behavior of capital markets when there are significant failure probabilities, and the analysis of productivity movements in industries with large amounts of entry and exit. In addition, these models provide a means of correcting for the self-section induced by liquidation decisions in empirical studies of firms responses to alternative policy and environmental changes. It is shown that the two models have different nonparametric implications - implications that depend only on basic behavioral assumptions and mild regularity conditions on the functional forms of interest (one distinction between them corresponds to the distinction between heterogeneity and an ergodic form of state-dependence; a form in which the effect of being in a state in a particular period erodes away as time from that period lapses). The nonparametric implications enable the construction of testing and selection correction procedures that are easy to implement (they do not require the computationally difficult, and functional-form specific, estimation algorithms that have been used to empirically analyze stochastic control models with discrete outcomes in the past). The paper concludes by checking for the implications of the two models on an eight-year panel of Wisconsin firms. We find one model to be consistent with the data for retail trade.

Empirical Implications of Alternative Models of Firm Dynamics

https://www.nber.org/system/files/working_papers/w2893/w2893.pdf

I t is increasingly apparent that the traditional Soviet-type command economy is a catastrophic failure Despite the touted statistical gains of "real socialism" during the last 40 years, we now understand that these gains were largely a statistical illusion, fostered by mismeasurement, faulty methodology, systemic incentives for exaggeration, and ideologically and politically motivated distortion (Winiecki, 1988; Ericson, 1990) Moreover, the economic system of "real socialism" in each of these states has imposed large negative social, political, ecological, and personal externalities Significant economic reform is now generally accepted as an imperative I am, however, convinced that successful economic reform of the Soviet-type economy will require a more comprehensive attack than hitherto attempted To understand the immense difficulties facing radical reform in the Soviet Union and Eastern Europe, one needs to perceive the Soviet-type economy as a coherent whole-a true system-with its own inherent logic, necessary components, and natural interaction of those components It, like any other economic system, is as much an organism as a mechanism, tending to counteract forces impinging frorn outside and to equilibrate the natural forces and tendencies that arise within it The logic and natural "equilibrium" of a command economy differ qualitatively and significantly from that of a largely private enterprise market economy' Hence reforms of a Soviet-type economy that are consistent with the basic nature of the system survive, without altering the qualitative characteristics of

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.5.4.11

The Classical Soviet-Type Economy: Nature of the System and Implications for Reform

A noted American economist and specialist on the economies of the former Soviet Union presents the results of his research on the Eurasian network of natural gas pipelines. While the focus is on the political economy of network interdependence, the author covers in considerable detail the political significance of Russia's substantial market power and its efforts to enhance that power in 2007 and 2008. More specifically, he highlights Gazprom's role both as a supplier of natural gas to Europe and as the core of a monopoly controlling exports of natural gas from Russia and Central Asia by expropriating and/or blocking foreign ownership of natural gas reserves as well as production and transportation facilities in Russia. Journal of Economic Literature, Classification Numbers: F100, F230, L950, P330, Q400. 11 figures, 1 table, 51 references.

Richard E. Ericson

Papers

Markov-Perfect Industry Dynamics: A Framework for Empirical Work

Empirical Implications of Alternative Models of Firm Dynamics

Empirical Implications of Alternative Models of Firm Dynamics

The Classical Soviet-Type Economy: Nature of the System and Implications for Reform

Eurasian Natural Gas Pipelines: The Political Economy of Network Interdependence