Pass-through as a test for market power: an application to solar subsidies

Working paper

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. Specically, we estimate the pass-through ofsolar subsidies to solar system prices using rich micro-level transaction and subsidy data fromCalifornia. 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 competitiveby ruling out alternative explanations for over-shifting, and reinforce this conclusion with a testof solar demand curvature. This procedure can serve to detect market power beyond the solarmarket.

Authors: Pless, J

• Publication status: Published
• Publisher: University of Oxford
• Series: OxCarre Papers
• Publication date: 2018-07-09
• Paper number: 212
• Keywords: pass-through; market power; solar subsidy; over-shifting; demand curvature; third-