The use of data envelopment analysis for the detection of price above the competitive level

In: Empirica, Jg. 22 (1995) ; Nr. 2, S. 103-113
ISSN: 0340-8744
Zeitschriftenaufsatz / Fach: Wirtschaftswissenschaften
Abstract:
Economic theory can predict the impact of exogenous influences on the equilibrium prices in a market. However, it is difficult to measure the magnitude of such effects because the appropriate data are usually not available. In this paper a new approach to comparing prices is explored using individual firm data which are typically available. If the firms in different markets can be assumed to use the same technology, price differentials can be inferred from the estimates can be assumed to use the same technology, price differentials can be inferred from the estimates of best practice frontiers. The new approach is applied to data on the Swiss construction industry in different cantons. In some cantons the market can be said to be competitive, in others non-competitive procurement rules are expected to raise equilibrium prices. The data envelopment analysis estimates the price differential to be approximately equal to 7.5%.