Determining market power exertion between buyers and sellers

Empirical techniques commonly used in industrial organization to measure ma rket power exertion typically assume imperfectly competitive behaviour by f irms 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 bot h sides have potential market power. Using Monte Carlo simulations, we find that the model correctly estimates market power exercised by firms on eith er 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 m onopoly market power. Copyright (C) 2000 John Wiley (C) Sons, Ltd.