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

56 Pages Posted: 20 Mar 2017 Last revised: 19 Nov 2018

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.

Keywords: buy vs. lease, demand curvature, market power, over-shifting, Pass-Through, solar subsidy, third-party ownership

JEL Classification: H22, Q42, Q48, Q58

Suggested Citation

Pless, Jacquelyn and van Benthem, Arthur, Pass-Through as a Test for Market Power: An Application to Solar Subsidies (March 2017). CEPR Discussion Paper No. DP11908, Available at SSRN: https://ssrn.com/abstract=2937757

Jacquelyn Pless (Contact Author)

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

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United States

Arthur Van Benthem

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

3641 Locust Walk
Philadelphia, PA 19104-6372
United States
215-898-3013 (Phone)

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

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