Distinguishing the Source of Market Power |
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| Authors: | Kellie Curry Raper H. Alan Love C. Richard Shumway |
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| Affiliation: | Kellie Curry Raper is assistant professor, Department of Agricultural Economics, Oklahoma State University (formerly at Michigan State University. H. Alan Love is professor, Department of Information and Operations Management (Mays Business School) and Department of Agricultural Economics, Texas A&M University C. Richara Shumway is professor, School of Economic Sciences, Washington State University. |
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| Abstract: | 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. |
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| Keywords: | cigarettes market power monopoly monopsony nonparametric Solow residuals |
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