PARAMETRIC AND NONPARAMETRIC MARKET POWER TESTS: AN EMPIRICAL INVESTIGATION

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.