96-036
CONDUCT PARAMETERS AND THE MEASUREMENT OF MARKET POWER:
THE IMPOSSIBILITY OF ASTRUCTURAL INFERENCE
Kenneth Corts
This paper examines a simple version of the conduct parameter method widely
used in empirical industrial organization and argues that the conduct parameter fails to
measure market power accurately. It is shown analytically and with simulations that in a
dynamic oligopoly model this mismeasurement can be quite severe. A structural model
that allows consistent estimation of the desired conduct parameter when firm behavior is
generated as the equilibrium of a dynamic game is then developed. JEL classification: C1,
L0.
C&S
39 pages
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