IDEAS home Printed from https://ideas.repec.org/a/jae/japmet/v15y2000i3p225-252.html
   My bibliography  Save this article

Determining market power exertion between buyers and sellers

Author

Listed:
  • 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.

Suggested Citation

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

    Download full text from publisher

    File URL: http://qed.econ.queensu.ca:80/jae/2000-v15.3/
    File Function: Supporting data files and programs
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    3. Daniel A. Sumner & Michael K. Wohlgenant, 1985. "Effects of an Increase in the Federal Excise Tax on Cigarettes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(2), pages 235-242.
    4. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
    5. A. Blake Brown, 1995. "Cigarette Taxes and Smoking Restrictions: Impacts and Policy Implications," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(4), pages 946-951.
    6. Paul R. Johnson & Daniel T. Norton, 1983. "Social Cost of the Tobacco Program Redux," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(1), pages 117-119.
    7. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
    8. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    9. Sullivan, Daniel, 1989. "Monopsony Power in the Market for Nurses," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 135-178, October.
    10. Pollak, Robert A. & Wales, Terence J., 1991. "The likelihood dominance criterion : A new approach to model selection," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 227-242, February.
    11. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    12. 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(2), pages 1-8, December.
    13. Sumner, Daniel A, 1981. "Measurement of Monopoly Behavior: An Application to the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1010-1019, October.
    14. 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 483-498, June.
    15. 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 250-257, May.
    16. 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.
    17. 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.
    18. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-162, February.
    19. Sullivan, Daniel, 1985. "Testing Hypotheses about Firm Behavior in the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 586-598, June.
    20. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-330, April.
    21. Bruce A. Babcock & William E. Foster, 1992. "Economic Rents Under Supply Controls with Marketable Quota," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 630-637.
    22. H. Alan Love & Endah Murniningtyas, 1992. "Measuring the Degree of Market Power Exerted by Government Trade Agencies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 546-555.
    23. Blake Brown, A. & Martin, Laura L., 1996. "Price versus Quota Reductions: U.S. Flue-Cured Tobacco Policy," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 28(2), pages 445-452, December.
    24. Madhavan, Ananth N & Masson, Robert T & Lesser, William H, 1994. "Cooperation for Monopolization? An Empirical Analysis of Cartelization," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 161-175, February.
    25. Amemiya, Takeshi, 1977. "The Maximum Likelihood and the Nonlinear Three-Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model," Econometrica, Econometric Society, vol. 45(4), pages 955-968, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Çakır, Metin & Nolan, James, 2015. "Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-17, May.
    2. Chanjin Chung & Seongjin Park & Jungmin Lee, 2018. "Estimating bilateral market power of processors and retailers in the U.S. beef industry," Agribusiness, John Wiley & Sons, Ltd., vol. 34(4), pages 771-792, October.
    3. 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.
    4. 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.
    5. Dae‐Wook Kim & Christopher R. Knittel, 2006. "Biases In Static Oligopoly Models? Evidence From The California Electricity Market," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 451-470, December.
    6. 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.
    7. Nguyen Thi Tuoi & Nguyen Phu Son & Pham Le Thong, 2021. "Estimating the Market Power of Traders in the Arabica Coffee Value Chain in Lam Dong, Vietnam," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 7(3), pages 102-108, 09-2021.
    8. Tian Xia & Brian Sancewich, 2018. "Interaction between buyer power in agricultural procurement and seller power in food retailing, and optimal allocation of anti-trust efforts," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 6(1), pages 1-19, December.
    9. Chen, Yuquan & Yu, Xiaohua, 2018. "Does the centralized slaughtering policy create market power for pork industry in China?," China Economic Review, Elsevier, vol. 50(C), pages 59-71.
    10. 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).
    11. 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.
    12. John M. Connor, 2008. "Forensic Economics: An Introduction With Special Emphasis On Price Fixing," Journal of Competition Law and Economics, Oxford University Press, vol. 4(1), pages 31-59.
    13. Carmen D. à lvarez-Albelo & Raúl Hernández-Martín, 2012. "Congestion and Coordination Problems in a Tourism Economy," Tourism Economics, , vol. 18(4), pages 691-710, August.
    14. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raper, Kellie Curry & Love, H. Alan, 1999. "MONOPSONY POWER IN MULTIPLE INPUT MARKETS: A Nonparametric Approach," Staff Paper Series 11656, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. Perloff, Jeffrey M, 1991. "Econometric analysis of imperfect competition and implications for trade research," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt46w1j22d, Department of Agricultural & Resource Economics, UC Berkeley.
    3. Noelke, Corinna M. & Raper, Kellie Curry, 1999. "Nonstructural And Statistical Nonparametric Market Power Tests: An Empirical Investigation," 1999 Annual meeting, August 8-11, Nashville, TN 21645, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
    5. Perekhozhuk, Oleksandr, 2007. "Marktstruktur und Preisbildung auf dem ukrainischen Markt für Rohmilch," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 41, number 92322.
    6. Chen, Yuquan & Yu, Xiaohua, 2018. "Does the centralized slaughtering policy create market power for pork industry in China?," China Economic Review, Elsevier, vol. 50(C), pages 59-71.
    7. Anthony N. Rezitis & A. Blake Brown & William E. Foster, 1998. "Adjustment costs and dynamic factor demands for U.S. cigarette manufacturing," Agricultural Economics, International Association of Agricultural Economists, vol. 18(3), pages 217-231, May.
    8. Ronchi, Loraine, 2006. "Fairtrade and market failures in agricultural commodity markets," Policy Research Working Paper Series 4011, The World Bank.
    9. Henry Nieuwenhuijsen & Gerrit de Wit & Frank Hindriks, 2000. "Comparative advantages in estimating markups," Scales Research Reports H200003, EIM Business and Policy Research.
    10. Kelly Tiller & Shiferaw Feleke & Jane Starnes, 2013. "Federal excise tax increase and its effects on U.S. tobacco production," Empirical Economics, Springer, vol. 44(2), pages 701-717, April.
    11. Morakinyo O. Adetutu & Thomas G. Weyman-Jones, 2019. "Fuel Subsidies Versus Market Power: Is There a Countervailing Second-Best Optimum?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1619-1646, December.
    12. Dries Maes & Mark Vancauteren & Steven Passel, 2019. "Investigating market power in the Belgian pork production chain," Review of Agricultural, Food and Environmental Studies, Springer, vol. 100(1), pages 93-117, December.
    13. 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).
    14. Jones, Rodney & Purcell, Wayne & Driscoll, Paul & Peterson, Everett, 1996. "Issues and Cautions in Employing Behavioral Modeling Approaches to Test for Market Power," Staff Papers 232517, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    15. Dries Maes & Mark Vancauteren & Steven Van Passel, 2019. "Investigating market power in the Belgian porkproduction chain," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 100(1-4), pages 93-117.
    16. Benny Overton & John Beghin & William Foster, 2017. "Phytosanitary Regulation and Agricultural Flows: Tobacco Inputs and Cigarettes Outputs," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 19, pages 327-337, World Scientific Publishing Co. Pte. Ltd..
    17. Holloway, Garth J. & Hertel, Thomas W., 1991. "Comparing Hypotheses About Competition," Working Papers 225867, University of California, Davis, Department of Agricultural and Resource Economics.
    18. Kellie Curry Raper & H. Alan Love, 2007. "Market power in tobacco: Measuring multiple markets," Agribusiness, John Wiley & Sons, Ltd., vol. 23(1), pages 35-55.
    19. Overton, Benny E. & Beghin, John C. & Foster, William E., 1995. "Phytosanitary Regulation and Agricultural Trade Flows: Tobacco Inputs and Cigarettes Outputs," Staff General Research Papers Archive 1590, Iowa State University, Department of Economics.
    20. Maes, Dries & Vancauteren, Mark & Van Passel, Steven, 2019. "Investigating market power in the Belgian pork production chain," Review of Agricultural, Food and Environmental Studies, Institut National de la Recherche Agronomique (INRA), vol. 100(1-4), November.

    More about this item

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Determining market power exertion between buyers and sellers (Journal of Applied Econometrics 2000) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:15:y:2000:i:3:p:225-252. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0883-7252/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.