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Distinguishing the Source of Market Power
Author(s) -
Raper Kellie Curry,
Love H. Alan,
Shumway C. Richard
Publication year - 2007
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2007.00964.x
Subject(s) - monopsony , market power , monopolistic competition , economics , downstream (manufacturing) , microeconomics , power (physics) , econometrics , nonparametric statistics , market structure , market share , industrial organization , operations management , monopoly , physics , finance , quantum mechanics
Structural models used to measure market power, though widely employed, continue to be criticized. We compare alternative market power tests, including nonparametric and Solow residual‐based (SRB) tests. We develop SRB methods that permit nested testing for both monopolistic and monopsonistic market power by the same firm. These tests and a set of nonparametric tests are implemented to examine market power exertion by U.S. cigarette manufacturers from 1977 to 1993. All tests indicate that cigarette manufacturers exerted monopsonistic power in the upstream tobacco market. They are mixed on whether monopolistic power exertion was exerted in the downstream market.