Pass-Through as a Test for Market Power: An Application to Solar Subsidies
Author(s)Pless, Jacquelyn; van Benthem, Arthur A.
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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.
DepartmentSloan School of Management
AEJ: Applied Economics
American Economic Association
Pless, Jacquelyn and Arthur A. van Benthem. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies." AEJ: Applied Economics 11, 4 (October 2019): 367-401.
Final published version