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Determining market power exertion between buyers and sellers

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Author Info

  • Kellie Curry Raper

    (Department of Agricultural Economics, Michigan State University, East Lansing, MI 48824-1039, USA)

  • H. Alan Love

    (Department of Agricultural Economics, Texas A&M University, Blocker Building, College Station, TX 77843-2124, USA)

  • C. Richard Shumway

    (Department of Agricultural Economics, Washington State University, Pullman, WA 99164-6210, USA)

Abstract

Empirical techniques commonly used in industrial organization to measure market power exertion typically assume imperfectly competitive behaviour by firms on only one side of the market. Firms on the other side are assumed to be perfectly competitive. In this paper we extend traditional NEIO methods by developing a method to estimate market power exertion when firms on both sides have potential market power. Using Monte Carlo simulations, we find that the model correctly estimates market power exercised by firms on either or both sides of a market and also correctly estimates firms' technology parameters. When applied to the US leaf tobacco market, findings indicate that cigarette manufacturers exert some monopsony power in purchasing leaf tobacco while producers, organized as a cartel, exhibit no countervailing monopoly market power. Copyright © 2000 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 15 (2000)
Issue (Month): 3 ()
Pages: 225-252

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Handle: RePEc:jae:japmet:v:15:y:2000:i:3:p:225-252

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  1. Sullivan, Daniel, 1989. "Monopsony Power in the Market for Nurses," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S135-78, October.
  2. Pollak, R.A. & Wales, T.J., 1990. "The Likelihood Dominance Criterion: A New Approach To Model Selection," Working Papers 90-10, University of Washington, Department of Economics.
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  5. Atkinson, Scott E & Kerkvliet, Joe, 1989. "Dual Measures of Monopoly and Monopsony Power: An Application to Regulated Electric Utilities," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 250-57, May.
  6. Schroeter, John R., 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," Staff General Research Papers 11114, Iowa State University, Department of Economics.
  7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  8. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  9. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  10. Sullivan, Daniel, 1985. "Testing Hypotheses about Firm Behavior in the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 586-98, June.
  11. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99.
  12. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  13. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
  14. Brown, A. Blake & Martin, Laura L., 1996. "Price Versus Quota Reductions: U.S. Flue-Cured Tobacco Policy," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 28(02), December.
  15. Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 483-98, June.
  16. Roger Feldman & Richard Scheffler, 1982. "The union impact on hospital wages and fringe benefits," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(2), pages 196-206, January.
  17. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
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Citations

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Cited by:
  1. Noelke, Corinna M. & Raper, Kellie Curry, 1998. "Parametric And Nonparametric Market Power Tests: An Empirical Investigation," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20875, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Gerry E. Boyle, 2004. "Hall-Roeger Tests of Market Power in Irish Manufacturing Industries," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 289-304.
  3. Kellie Curry Raper & Corinna Noelke, 2004. "Determining market power exertion between buyers and sellers: are nonparametrics a viable alternative?," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2265-2274.
  4. O'Donnell, Christopher J. & Griffith, Garry R. & Nightingale, John J. & Piggott, Roley R., 2003. "Testing for Market Power in the Australian Grains and Oilseeds Industries: Further Results," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57930, Australian Agricultural and Resource Economics Society.
  5. Mujawamariya, Gaudiose & Burger, Kees & D'Haese, Marijke F.C., 2012. "Behaviour and performance of traders in the gum arabic supply chain in Senegal: Investigating oligopsonistic myths," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126236, International Association of Agricultural Economists.
  6. Christopher Knittel & Dae-Wook Kim, 2005. "Biases in Static Oligopoly Models?:Evidence from the California Electricity Market," Working Papers 526, University of California, Davis, Department of Economics.
  7. Xia, Tian & Sancewich, Brian, 2012. "Retail Markets and Buyer Power in Agricultural Procurements," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124929, Agricultural and Applied Economics Association.

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