We formalize pass-through over-shifting as a simple yet underutilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.
Pless, Jacquelyn, and Arthur A. van Benthem.
"Pass-Through as a Test for Market Power: An Application to Solar Subsidies."
American Economic Journal: Applied Economics,
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
State and Local Government: Other Expenditure Categories
Oligopoly and Other Imperfect Markets
Microelectronics; Computers; Communications Equipment
Alternative Energy Sources
Energy: Government Policy