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Parametric And Nonparametric Market Power Tests: An Empirical Investigation

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  • Noelke, Corinna M.
  • Raper, Kellie Curry
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    Abstract

    Parametric and nonparametric market power tests most commonly used to assess imperfectly competitive behavior are identified. Monte Carlo experiments are used to assess the accuracy of eight nonparametric tests. The results are compared to Raper, Love, and Shumway's (1997) findings concerning three parametric market power tests in the Bresnahan-Lau tradition. Both monopolistic and monopsonistic market power tests are implemented using data from 10 known market structures. Only two of the nonparametric market power tests distinguish between market structures adequately. The parametric tests perform well, although functional form bias is not investigated in this study.

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    File URL: http://purl.umn.edu/20875
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    Bibliographic Info

    Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 1998 Annual meeting, August 2-5, Salt Lake City, UT with number 20875.

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    Date of creation: 1998
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    Handle: RePEc:ags:aaea98:20875

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    Keywords: Industrial Organization; Marketing;

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    1. 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.
    2. 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.
    3. Kellie Curry Raper & H. Alan Love & C. Richard Shumway, 2000. "Determining market power exertion between buyers and sellers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(3), pages 225-252.
    4. Hyde, Charles & Perloff, Jeffrey M, 1993. "Can market power be estimated?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6d7127mr, Department of Agricultural & Resource Economics, UC Berkeley.
    5. repec:cdl:agrebk:677104 is not listed on IDEAS
    6. Lambert, David K., 1994. "Technological Change In Meat And Poultry-Packing And Processing," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 26(02), December.
    7. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
    8. Paul J. Driscoll & S. Murthy Kambhampaty & Wayne D. Purcell, 1997. "Nonparametric Tests of Profit Maximization in Oligopoly with Application to the Beef Packing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 872-879.
    9. Kellie Curry Raper & H. Alan Love & C. Richard Shumway, 2007. "Distinguishing the Source of Market Power," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(1), pages 78-90.
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