Is There a Market for Work Group Servers? Evaluating Market Level Demand Elasticities Using Micro and Macro Models
Paper No' CEPDP0650:
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Keywords: demand elasticities; network servers, computers, anti-trust
JEL Classification: O3; L1; L4
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This Paper is published under the following series:
CEP Discussion Papers
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This paper contains an empirical analysis demand for “work-group” (or low-end) servers. Servers are at the
centre of many US and EU anti-trust debates, including the Hewlett-Packard/Compaq merger and investigations
into the activities of Microsoft. One question in these policy decisions is whether a high share of work servers
indicates anything about shortrun market power. To investigate price elasticities we use model-level panel data
on transaction prices, sales and characteristics of practically every server in the world. We contrast estimates
from the traditional “macro” approaches that aggregate across brands and modern “micro” approaches that use
brand-level information (including both “distance metric” and logit based approaches). We find that the macro
approaches lead to overestimates of consumer price sensitivity. Our preferred micro-based estimates of the
market level elasticity of demand for work group servers are around 0.3 to 0.6 (compared to 1 to 1.3 in the
macro estimates). Even at the higher range of the estimates, however, we find that demand elasticities are
sufficiently low to imply a distinct “anti-trust” market for work group servers and their operating systems. It is
unsurprising that firms with large shares of work group servers have come under some antitrust scrutiny.