Measurement of monopoly behavior: An application to the cigarette industry
Publication Source

Journal of Political Economy

Journal article
The Americas
Economy status
High-income economies
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A simple scheme is proposed to measure monopoly pricing behavior. The coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost. No direct measurement of costs is required, so a major problem for other empirical studies of monopoly is avoided. Empirical results for cross-section time-series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry. The model represents an alternative interpretation of related results in a recent paper by Barzel. Application of the methodology to other markets is feasible.