TITLE:
The Panzar-Rosse Statistic Revisited
AUTHORS:
Hiroshi Gunji, Yuan Yuan
KEYWORDS:
Panzar-Rosse Statistic, Monopolistic Competition, Increasing Returns to Scale
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.1,
December
31,
2016
ABSTRACT: In this note, we prove that even if the technology of firms exhibits increasing returns
to scale, the Panzar-Rosse statistic in a monopolistic competitive market is still
available and has a negative value. Further, we show that the statistic would be greater
than unity if firms with increasing-returns-to-scale technology were to choose a
saddle point under certain conditions. This implies that the value of greater than unity
is not actually observed.