Revealed Growth: A Method for Bounding the Elasticity of Demand with an Application to Assessing the Antitrust Remedy in the Du Pont Decision / Wallace P. Mullin, Christopher M. Snyder.

Format:

Book

Author/Creator:

Mullin, Wallace P.

Contributor:

National Bureau of Economic Research.

Snyder, Christopher M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24786.

NBER working paper series no. w24786

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Revealed Growth

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We propose a method for bounding the demand elasticity in growing, homogeneous-product markets that requires only minimal data--market price and quantity over a time span as short as two periods. Reminiscent of revealed-preference arguments using choices over time to bound the shape of indifference curves, we use shifts in the equilibrium over time to bound the shape of the demand curve under the assumption that growing demand curves do not cross. We apply the method to assess the effectiveness of the antitrust remedy in the 1952 Du Pont decision, ordering the incumbent manufacturers to license their patents for commercial plastics. Commentators have suggested that the incumbents may have preserved the monopoly outcome by gaming the licensing contracts. The upper bounds on demand elasticities that we compute are significantly less than 1 in many post-remedy years. Such inelastic demand is inconsistent with monopoly, suggesting the remedy may have been effective.

Notes:

Print version record

June 2018.