Production Function Identification Under Imperfect Competition

Welcome to a UiS School of Business and Law seminar in Economics and Finance:

• Date: Wednesday, November 13^th
• Time: 12:15 - 13:15
• Room: UiS Campus Ullandhaug, Elise Ottesen-Jensens hus, room EOJ 276/277 and on Teams

Link to Teams meeting, Meeting-ID: 333 959 431 479, Password: dHqthV

• Seminar speaker: Jan De Loecker, KU Leuven and CEPR

• Title of the presentation: Production Function Identification Under Imperfect Competition∗

Abstract:

The presence of imperfect competition introduces distinct challenges when identifying, and estimating, production functions. We start by highlighting that some existing approaches to production function estimation cannot completely abstract away from the presence of imperfect competition in the product market.

We then extend these existing approaches to accommodate some additional oligopoly models commonly used in empirical work by using a sufficient statistic approach, and show that the presence of such strategic interactions has important benefits in that they introduces additional exogenous variation that can help identify production functions.

We study how to optimally leverage this exogenous variation, both with and without direct data on a firm’s competitors, and use Monte-Carlo experiments to 1) verify that the existence of strategic interactions can identify production functions that would not otherwise be identified, and 2) assess the extent to which what applied researchers observe about competition affects the precision of estimates based on this variation.