Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128381
Authors: 
Reichelstein, Stefan J.
Sahoo, Anshuman
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5674
Abstract: 
This paper develops a model framework and a corresponding empirical inference procedure for estimating long-run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic module industry, we rely on firm-level financial accounting data to estimate the long-run marginal cost of PV modules for the years 2008 -2013. During those years, the industry experienced both sharp price declines and significant expansions of manufacturing capacity. By comparing the trajectory of average sales prices with the long-run marginal cost estimates, we are in a position to quantify the extent to which actual price declines were attributable to excess capacity as opposed to reductions in production costs. While we find a significant effect attributable to excess capacity for some quarters in our sample period, the dynamics of this industry also points to a rate of cost reductions that is even faster than the 80% learning curve which has described the trajectory of average sales prices over the past three decades.
Subjects: 
long-run marginal cost
cost estimation
learning-by-doing
price dynamics
JEL: 
D41
L11
L63
M21
Q42
Document Type: 
Working Paper

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