We compare an updated version of Aigner-Chu (1968) deterministic frontierestimation to stochastic frontier estimation. This comparison is illustrated byestimation of the Lerner index of monopoly power for a public sector producer.For the deterministic method we apply the bootstrap of Simar and Wilson(1998) and the m out of n bootstrap of Simar and Wilson (2011) as suggestedby Amsler et al. (2013) to construct confidence intervals for the Lerner indexand its price and marginal cost components. Marginal cost estimates arederived from a translog cost function. Since market prices are typically notobserved for public sector producers we use duality theory and derive price1from observed costs and an estimated translog input distance function. Datafrom German public theaters’ production of performances to attract spectatorsusing inputs of artistic staff, administrative staff, and other operatingexpenditures are used as an example. We find no evidence of monopoly power.
JEL codes: D24, D42