Working Paper: NBER ID: w23260
Authors: Jacquelyn Pless; Arthur A. Van Benthem
Abstract: We formalize pass-through over-shifting as a simple yet under-utilized 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.
Keywords: Passthrough; Market Power; Solar Subsidies; California Solar Initiative
JEL Codes: H22; Q42; Q48; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher subsidies (H23) | Lower system prices (P22) |
| Higher subsidies (H23) | Full subsidy capture by buyers (D41) |
| Higher subsidies (H23) | More than complete passthrough for lessees (G32) |
| Passthrough rates (H29) | Indication of market power (D42) |
| Demand curvature (D11) | High passthrough rates (H22) |