Does the US have Market Power in Importing Ethanol from Brazil?
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Increasing requirements in the US to blend higher volumes of advanced biofuels with gasoline has increased the importance of imports of sugarcane-based ethanol from Brazil. Using the residual supply approach we test for oligopsony power of US importers in importing ethanol from Brazil. The residual supply elasticity is found to be highly elastic and positive indicating a small degree of market power. The result implies that the US importers are operating as oligopsony with respect to ethanol imports from Brazil and further restricting ethanol imports would reduce welfare of US importers.