Revisiting Conduct Parameter Estimation in Homogeneous Goods Markets: At Least, Linear Model is Valid

Abstract

We revisit the conduct parameter estimation in homogeneous goods markets. In contrast to the pessimistic simulation results of linear models shown in Perloff and Shen (2012), our simulation shows that the estimation becomes accurate by properly adding demand shifters in the supply estimation and increasing the sample size. We also investigate log-linear models widely used in Industrial Organization literature and recommended by Perloff and Shen (2012) and find other estimation problems. Based on the numerical investigation, at least the linear model can achieve a proper estimation of the conduct parameter.