[UTMD-107] Revisiting the Identification of the Conduct Parameter in Homogeneous Goods Markets (by Yuri Matsumura, Suguru Otani)

Yuri Matsumura, Suguru Otani

We revisit the identification of the conduct parameter in homogeneous goods markets. Lau (1982) shows that the conduct parameter is not identified if and only if the inverse demand function is separable, except for a specific separable function. This result has been regarded as an extension of the result in Bresnahan (1982) to more general settings. However, we show that Lau’s claim is incorrect and provide a new characterization of the non-identification. Our characterization shows that the presence of demand rotation instruments in the demand function is the necessary and sufficient condition for identifying the conduct parameter. Therefore, our result properly generalizes the role of demand rotation instruments in identifying the conduct parameter, as highlighted by Bresnahan (1982), to more general settings.