Abstract
Simulation experiments demonstrate the strengths and weaknesses of the Panzar-Rosse, Hall, and structural approaches to estimating or testing market power. The structural model works well only if it is properly specified. The Hall methods works well in industries with constant retums to scale (CRS); however, even slight deviations from CRS lead to serious biases. Although easier to use than the structural approach, the Panzar-Rosse approach cannot distinguish between collusion and competition for some technologies. Some empirical applications of the Hall and Panzar-Rosse methods are provided.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Ashenfelter, Orley and Sullivan, Daniel (1987) ‘Nonparametric Tests of Market Structure: An Application to the Cigarette Industry’,Journal of Industrial Economics 35, 483–98.
Berndt, Ernst R. and Wood, David O. (1986)U.S. Manufacturing Output and Factor Input Price and Quantity Series, 1908–1947 and 1947–1981, Massachusetts Institute of Technology, Energy Laboratory Working Paper 86-010WP.
Bresnahan, Timothy F. (1982) ‘The Oligopoly Solution Concept is Identified’,Economics Letters 10, 87–92.
Bresnahan, Timothy F. (1989) ‘Studies of Industries with Market Power’, in Richard Schmalensee and Robert Willig (eds.),Handbook of Industrial Organization, New York: North Holland.
Carlton, Dennis W. and Perloff, Jeffrey M. (1994)Modern Industrial Organization. 2nd edition, New York: Harper Collins Publishing Co.
Domowitz, Ian, Hubbard, Glenn R., and Petersen, Bruce C. (1986) ‘Business Cycles and the Relationship between Concentration and Price-Cost Margins’,The Rand Journal of Economics 17, 1–17.
Domowitz, Ian, Hubbard, Glenn R., and Petersen, Bruce C. (1988) ‘Market Structure and Cyclical Fluctuations in U. S. Manufacturing’,Review of Economics and Statistics 70, 55–66.
Hall, Robert E. (1988) “The Relationship between Price and Marginal Cost in U.S. Industry’,Journal of Political Economy 96, 921–47.
Just, Richard E. and Chern, Wen S. (1980) ‘Tomatoes, Technology, and Oligopsony’,Bell Journal of Economics and Management Science 11, 584–602.
Lau, Lawrence J. (1982) ‘On Identifying the Degree of Competitiveness from Industry Price and Output Data’,Economics Letters 10, 93–9.
Panzar, John C. and Rosse, James N. (1987) ‘Testing for “Monopoly” Equilibrium’,The Journal of Industrial Economics 35, 443–56.
Rosse, James N. and Panzar, John C. (1977)Chamberlin versus Robinson: An Empirical Test for Monopoly Rents, Studies in Industry Economics, Research Paper No. 77, Stanford University.
Shapiro, Matthew (1987)Measuring Market Power in U. S. Industry, National Bureau of Economic Research Working Paper No. 2212.
Sullivan, Daniel (1985) ‘Testing Hypotheses about Firm Behavior in the Cigarette Industry’,Journal of Political Economy 93, 586–98.
Sumner, Daniel A. (1981) ‘Measurement of Monopoly Behavior: An Application to the Cigarette Industry’,Journal of Political Economy 89, 1010–19.
Author information
Authors and Affiliations
Additional information
We thank Wayne Gray for generously providing data, James Chalfant for helpful discussions on estimating nonlinear models, and two anonymous referees for helpful suggestions. Shazam 7.0 was used for both simulations and estimations.
Rights and permissions
About this article
Cite this article
Hyde, C.E., Perloff, J.M. Can market power be estimated?. Rev Ind Organ 10, 465–485 (1995). https://doi.org/10.1007/BF01024231
Issue Date:
DOI: https://doi.org/10.1007/BF01024231