Abstract
AbstractPast research on pricing in imperfectly competitive markets conventionally assumes that competition operates through a specific quantity or a price game. However, most markets do not function in a manner consistent with a single static benchmark. Methods to overcome this problem have largely been rejected by the research community (i.e., conjectural variations). The primary objective of our research is to introduce a new methodology for measuring imperfect competition under product differentiation in consumer goods. We develop the empirical procedures for estimating a competitive toughness model as proposed by d'Aspremont, Dos Santos Ferreira, and Gérard‐Varet. This approach presents a theoretically grounded procedure that measures market power in an empirically tractable framework. We estimate the proposed model on the retail market for ground coffee. Our results suggest that market power is understated in a model that imposes the restriction of Bertrand pricing. The results suggest that this could be a promising approach for use in many applications. [EconLit citations: D43, L13, K21]
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