We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than- complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.


Pless, J. & van Benthem, A.A. (2018). 'Pass-Through as a Test for Market Power: An Application to Solar Subsidies'. NBER Working Paper No. 23260. Forthcoming in American Economic Journal: Applied Economics.
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