Dual Measures of Monopoly and Monopsony Power: An Application to Regulated Electric Utilities

Scott Atkinson and Joe Kerkvliet

The Review of Economics and Statistics, 1989, vol. 71, issue 2, 250-57

Abstract: The inefficiency from monopoly pricing, monopsony pricing, and other institutional factors should be simultaneously estimated to avoid misspecification. Estimation of a behavioral profit function, where input and output shadow prices may diverge from their market values, allows unbiased simultaneous estimation of inefficiencies if its normalized form is employed. In an application to electric utilities consuming western coal, the authors cannot reject the hypothesis that utilities act as price-takers in output markets and find weak and statistically insignificant evidence of fuel-adjustment-clause bias. Strong evidence is found of monopsony behavior in the market for western coal and its transportation. Copyright 1989 by MIT Press.

Date: 1989
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