Econometrics

Imagine that your research question requires you to analyse the extent to which concentrated market
structures cause supernormal profits and inhibit competition. Explore the dataset TMA05_data_2022J.gdt,
which contains data for 80 different industries, including variables concerning price cost margins (two
measures, pcm1 and pcm2), advertising intensity (adint) and a five-firm concentration ratio (conc). Using the
dataset TMA05_data_2022J.gdt, construct relevant evidence to do the following:
i. Produce some descriptive statistics and draw histograms for the variables relevant to the analysis of the
research question. Then analyse the main features of the distribution of each variable and the
relationships between them. Are the relationships between price cost margin, market concentration and
advertising intensity as economic theory would suggest? (20 marks)
ii. Write down an econometric model that analyses the impact of market structure on performance, based
on the results from Part (i) and also on your knowledge of economic theory. Drawing on economic theory
taught in this module, briefly explain what sign (positive or negative) you expect to observe for the
coefficients of the independent variables in your equation. (15 marks)
iii. Using a suitable econometric method, estimate the model you were asked to write down in Part (ii).
Report the estimation output and explain your results. Your explanation should include a discussion of
the robustness of your model, its limitations, and any additional steps you have taken to check for
common econometric issues. (30 marks)