Pass-Through as a Test for Market Power: An Application to Solar Subsidies
- (pp. 367-401)
Abstract
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.Citation
Pless, Jacquelyn, and Arthur A. van Benthem. 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies." American Economic Journal: Applied Economics, 11 (4): 367-401. DOI: 10.1257/app.20170611Additional Materials
JEL Classification
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H76 State and Local Government: Other Expenditure Categories
- L13 Oligopoly and Other Imperfect Markets
- L63 Microelectronics; Computers; Communications Equipment
- Q42 Alternative Energy Sources
- Q48 Energy: Government Policy
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