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Market power in tobacco: Measuring multiple markets

Listed author(s):
  • Kellie Curry Raper

    (Oklahoma State University, Stillwater, OK 74078)

  • H. Alan Love

    (Department of Information and Operations Management, Mays Business School, and Department of Agricultural Economics, Texas A&M University, College Station, TX 77843)

Traditional market power analyses of the U.S. cigarette manufacturing industry consider monopoly power exertion by manufacturers in selling cigarettes to consumers. Market characteristics combined with government policy make it plausible that manufacturers exert monopsony market power in procuring tobacco. We investigate this possibility in the U.S. and international tobacco markets by extending nonparametric tests to include simultaneously potential monopoly market power with potential monopsony market power in multiple input markets, allowing both Hicks-neutral and biased technical change. We use annual data from the cigarette manufacturing industry from 1977 to 1993. Results indicate substantial departures from competitive pricing in the procurement of domestic tobacco, supporting the postulate that cigarette manufacturers appropriate monopsony rents despite, and perhaps at times through, U.S. tobacco farm policy. Results are less clear with respect to monopsony market power exertion in imported leaf tobacco procurement by cigarette manufacturers. Finally, results indicate that monopoly market power exertion is relatively small and that, when the possibility of monopsony market power exertion is admitted, monopoly market power exertion is no longer problematic.[EconLit citations: L100, L660]. © 2007 Wiley Periodicals, Inc. Agribusiness 23: 35-55, 2007.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 23 (2007)
Issue (Month): 1 ()
Pages: 35-55

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Handle: RePEc:wly:agribz:v:23:y:2007:i:1:p:35-55
DOI: 10.1002/agr.20112
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  1. 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.
  2. James A. Chalfant & Bin Zhang, 1997. "Variations on Invariance or Some Unpleasant Nonparametric Arithmetic," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1164-1176.
  3. 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.
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