Identifying Behaviour in a Multiproduct Oligopoly: Incumbents' Reaction to Tariffs Dismantling
Jordi Jaumandreu, Department of Economics, Universidad Carlos III de Madrid
The Spanish automobile market of the nineties experienced a perfectly foreseeable
tariff dismantling and a strong demand downturn, with the observed result of an apparently
sharpened producer competition in products and perhaps in prices. This paper
is aimed at testing whether or not there really was a change in pricing behavior, using
a structural model of competition. To answer that question, we specify, estimate and
test semiparametric pricing equations with panel data for 164 models belonging to the
31 firms which competed in the market. The specification includes several equilibriums
as alternative estimating models, considering prominently tacit coalitions by which a
group of firms sets prices, taking into account the cross effects on their demands. The
statistical test selects as the best model given the data an unbroken coalition of domestic
and European producers. Comparative results using tight demand side specifications
show that an inadequate specification of the demand side may induce wrong inferences.
Date: 14 March 2006
