Resolving the conflict on conduct parameter estimation in homogeneous goods markets between Bresnahan (1982) and Perloff and Shen (2012)

Abstract

We revisit conduct parameter estimation in homogeneous goods markets to resolve the conflict between Bresnahan (1982) and Perloff and Shen (2012) regarding the identification and the estimation of conduct parameters. We point out that Perloff and Shen’s (2012) proof is incorrect and its simulation setting is invalid. Our simulation shows that estimation becomes accurate when demand shifters are properly added in supply estimation and sample sizes are increased, supporting Bresnahan (1982).