This paper empirically analyzes the existence of market power in the global iron ore market during the period 1993-2012 using an innovative Stochastic Frontier Analysis approach introduced by Kumbhakar et al. (2012). In contrast to traditional econometric procedures, this approach allows for the estimation of firm- and time-specific Lerner indices and, therefore, the assessment of the influence of individual firm characteristics on the ability to generate markups. We find that markups on average amount to 20%. Moreover, location and experience are identified to be the most important determinants of the magnitude of firm-specific markups.
Germeshausen, Robert, Timo Panke und Heike Wetzel (2014), Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power – A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market, ZEW Discussion Paper No. 14-105, Mannheim. Download