Nursing shortages have been a common and perplexing problem in U.S. health care since World War II. Monopsony in the labor market of nurses has been one of the most popular explanations for these shortages. In this dissertation, taking two different structural approaches directly from economic theory, I test for the existence of noncompetitive elements in the nursing market.

I first present a general nonlinear supply-demand model that includes both competition and monopsony as subcases. Bresnahan (1982) suggested a test for monopoly power in product markets. I develop an analogous test for monopsony in factor markets and apply it to nursing. Under monopsony, the equilibrium wage equation depends upon the marginal factor cost curve. A nonlinear interaction term in the equilibrium wage equation exactly describes this dependence. Under competition this term disappears. Testing for the presence of this nonlinear interaction is therefore a valid test for the null of competition. I apply this test to a cross section of 564 U.S. hospitals in 1988, and cannot reject competition in the nursing market. The system is reestimated separately for urban and rural hospitals. The coefficient for the nonlinear effect in the equilibrium wage equation is again very small and insignificantly different from zero for both subsamples.

I extend this work by separately testing for different forms of oligopsony (Cournot, Bertrand, Stackelberg) in the registered and practical nurses' labor markets in California in the 1980s. With a model similar to Sullivan (1989) I estimate best response functions, and in particular the inverse of the elasticity of supply for individual hospitals, using information on neighboring hospitals (quantity of nurses employed, wages and caseload). I find in both markets a very elastic labor supply facing individual hospitals and hence little evidence of monopsony power regardless of the form of oligopsony assumed. The two factors are also found to be very good substitutes on both the supply and demand side. I estimate an elasticity of substitution between RNs and LVNs near infinity.

So, with both approaches I find very little, if any, monopsony power in the nursing market. Thus, if shortages are a real phenomenon, we need other factors to explain their presence.