Pass-Through as a Test for Market Power: An Application to Solar Subsidies

54 Pages Posted: 20 Mar 2017 Last revised: 21 Jan 2022

See all articles by Jacquelyn Pless

Jacquelyn Pless

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Arthur van Benthem

University of Pennsylvania - Business & Public Policy Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than- complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.

Suggested Citation

Pless, Jacquelyn and van Benthem, Arthur, Pass-Through as a Test for Market Power: An Application to Solar Subsidies (March 2017). NBER Working Paper No. w23260, Available at SSRN: https://ssrn.com/abstract=2937550

Jacquelyn Pless (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Arthur Van Benthem

University of Pennsylvania - Business & Public Policy Department ( email )

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HOME PAGE: http://bepp.wharton.upenn.edu/profile/21174/

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