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Welfare Losses Under Alternative Oligopoly Regimes: The U.S. Food And Tobacco Manufacturing Industries

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  • Bhuyan, Sanjib
  • Lopez, Rigoberto A.

Abstract

This article systematically estimates the allocative efficiency losses in the U.S. food and tobacco manufacturing industries under alternative oligopoly pricing regimes using a formal model of oligopoly. Using 1987 data for 44 industries and an industry-wide oligopoly pricing scheme, these losses were estimated at approximately 3% of sales--2% in the food industries and 19% in the tobacco industries. Five additional oligopoly pricing regimes, four of which are price leaderships, are simulated and their results compared and tested relative to the industry-wide pricing regime. Findings underscore the importance of cost structure assumptions and that the impact of the type of oligopoly behavior assumed is not as dramatic when differences in demand and cost specifications are smoothed out.

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Bibliographic Info

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

Volume (Year): 27 (1995)
Issue (Month): 02 (December)
Pages:

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Handle: RePEc:ags:joaaec:15269

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

Keywords: Food and tobacco industries; Market power; Welfare loss; Industrial Organization;

References

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  1. 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.
  2. Clarke, Roger & Davies, Stephen W, 1982. "Market Structure and Price-Cost Margins," Economica, London School of Economics and Political Science, vol. 49(195), pages 277-87, August.
  3. 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.
  4. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  5. Connor, John M. & Peterson, Everett B., 1994. "New Estimates Of Welfare And Consumer Losses In U.S. Food Manufacturing," Working Papers 116120, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
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Cited by:
  1. Xia, Tian & Sancewich, Brian, 2012. "Retail Markets and Buyer Power in Agricultural Procurements," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124929, Agricultural and Applied Economics Association.
  2. Morrison Paul, Catherine J., 2000. "Productivity And Efficiency In The U.S. Food System, Or, Might Cost Factors Support Increasing Mergers And Concentration?," Working Papers 11983, University of California, Davis, Department of Agricultural and Resource Economics.
  3. Trechter, David D. & McGregor, Murray J. & Murray-Prior, Roy B., 2003. "A Neo-Institutional Assessment of Cooperative Evolution: Comparing the Australian Wheat Board and the Fonterra Dairy Group," 2003 Annual Meeting, October 29 31801, NCERA-194 Research on Cooperatives.
  4. Bhuyan, Sanjib & Lopez, Rigoberto A., 1998. "What Determines Welfare Losses From Oligopoly Power In The Food And Tobacco Industries?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  5. Lopez, Rigoberto A. & Bhuyan, Sanjib, 1998. "Determinants of allocative efficiency losses from oligopoly power," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 61-72.

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