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Estimating Market Power And Pricing Conduct In A Product-Differentiated Oligopoly: The Case Of The Domestic Spaghetti Sauce Industry

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  • Vickner, Steven S.
  • Davies, Stephen P.

Abstract

This paper develops a simultaneous-equations panel data econometric model to obtain point estimates of market power and pricing conduct in a representative product-differentiated, oligopolistic food market. The importance of this class of markets is recognized given its prevalence in the food and fiber system, especially for final consumer food products. The $1.3 billion domestic spaghetti sauce industry is featured. Although the results indicate firms exert limited market power, a portion of this power is derived from tacit price collusion. A higher degree of price collusion was found among brands within a market segment than between segments.

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Bibliographic Info

Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 31 (1999)
Issue (Month): 01 (April)
Pages:

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Handle: RePEc:ags:joaaec:15137

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Web page: http://www.saea.org/jaae/jaae.htm
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Related research

Keywords: market power; oligopoly; pricing conduct; product differentiation; Marketing;

References

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  1. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  2. Peter M. Guadagni & John D. C. Little, 1983. "A Logit Model of Brand Choice Calibrated on Scanner Data," Marketing Science, INFORMS, vol. 2(3), pages 203-238.
  3. Cornwell, Christopher & Schmidt, Peter & Wyhowski, Donald, 1992. "Simultaneous equations and panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 151-181.
  4. Schroeter, John R., 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," Staff General Research Papers 11114, Iowa State University, Department of Economics.
  5. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  6. Baltagi, Badi H., 1981. "Simultaneous equations with error components," Journal of Econometrics, Elsevier, vol. 17(2), pages 189-200, November.
  7. Bhargava, Alok, 1991. "Identification and Panel Data Models with Endogenous Regressors," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 129-40, January.
  8. Greenhut,Melvin L. & Norman,George & Hung,Chao-Shun, 1987. "The Economics of Imperfect Competition," Cambridge Books, Cambridge University Press, number 9780521315647.
  9. Kinsey, Jean D. & Senauer, Benjamin, 1997. "Food Marketing in an Electronic Age: Implications for Agriculture," Choices, Agricultural and Applied Economics Association, vol. 12(2).
  10. Steven S. Vickner & Stephen P. Davies, 1998. "Comment: on the estimation of simultaneous-equations error-components models with an application to a model of developing country foreign trade," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(6), pages 671-671.
  11. Azzam, Azzeddine M. & Schroeter, John R., 1995. "The Tradeoff Between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing," Staff General Research Papers 5062, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. Maynard, Leigh J. & Saghaian, Sayed H. & Nickoloff, Megan, 2007. "Buyer and Seller Response to an Adverse Food Safety Event: The Case of Frozen Salmon in Alberta," Consumer and Market Demand Network Papers 6832, University of Alberta, Department of Resource Economics and Environmental Sociology.
  2. Rodrigo Menon Simões Moita & Daniel Silv, 2014. "Follow The Leader: Competition In The Auto Financing Sector," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 136, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Steven C. Blank & Gary D. Thompson, 2004. "Can/Should/Will A Niche Become the Norm? Organic Agriculture's Short Past and Long Future," Contemporary Economic Policy, Western Economic Association International, vol. 22(4), pages 483-503, October.
  4. Lavoie, Nathalie, 2001. "Price Discrimination In The Context Of Vertical Differentiation: A Modeling Approach For Wheat Exports," 2001 Annual meeting, August 5-8, Chicago, IL 20603, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Junko Kinoshita & Nobuhiro Suzuki & Harry M. Kaiser, 2002. "Explaining pricing conduct in a product-differentiated oligopolistic market: An empirical application of a price conjectural variations model," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 427-436.
  6. Vickner, Steven S. & Davies, Stephen P. & Fulton, Joan R. & Vantreese, Valerie L., 2000. "Estimating Market Power And Pricing Conduct For Private-Label And National Brands In A Product-Differentiated Oligopoly: The Case Of A Frozen Vegetable Market," Journal of Food Distribution Research, Food Distribution Research Society, vol. 31(02), July.
  7. Jan K. Brueckner & Dan Luo, 2013. "Measuring Strategic Firm Interaction in Product-Quality Choices: The Case of Airline Flight Frequency," CESifo Working Paper Series 4066, CESifo Group Munich.

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