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Estimation of Political Oligopoly Power of Domestic Producers in the Korean Raw-Milk Market

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  • Jeon, Sang-Gon
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    Abstract

    This paper estimates the political oligopoly power of domestic raw-milk producers in the Korean dairy market. Domestic raw-milk price for fluid use is decided exogenously by the government. The government announces the reference price of raw-milk price for fluid use to protect the domestic raw-milk producers from the potential market power of domestic dairy processors, because historically many small-sized domestic producers are a relatively weaker group than domestic processors. Here, this study has two questions: one is about how effectively the government protects the producers and the other is about how much the producers exert their political power against the government to raise the reference price in this process. Furthermore, this paper also tests how much the political oligopoly power of domestic producers is affected by the change of domestic political situation which is the inauguration of Korea Dairy Committee in this case. To answer these questions, this paper develops a theoretical model from a social welfare function and empirically estimates the political oligopoly power using the new empirical industrial organization (NEIO) approach.

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    File URL: http://purl.umn.edu/45681
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    Bibliographic Info

    Article provided by Korea Rural Economic Institute in its journal Journal of Rural Development/Nongchon-Gyeongje.

    Volume (Year): 31 (2008)
    Issue (Month): 5 (November)
    Pages:

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    Handle: RePEc:ags:jordng:45681

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    Keywords: Political power; market power; dairy; milk; Korea; Agribusiness; Agricultural and Food Policy; Community/Rural/Urban Development; Food Consumption/Nutrition/Food Safety; Marketing;

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    1. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
    2. Richard J. Sexton, 2000. "Industrialization and Consolidation in the U.S. Food Sector: Implications for Competition and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1087-1104.
    3. Swinnen, Johan F.M. & de Gorter, Harry, 1995. "Endogenous Commodity Policies and the Social Benefits from Public Research Expenditures," Working Papers 128002, Cornell University, Department of Applied Economics and Management.
    4. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    5. Bresnahan, Timothy F., 1981. "Departures from marginal-cost pricing in the American automobile industry : Estimates for 1977-1978," Journal of Econometrics, Elsevier, vol. 17(2), pages 201-227, November.
    6. De Gorter, Harry & Swinnen, Johan, 2002. "Political economy of agricultural policy," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 36, pages 1893-1943 Elsevier.
    7. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
    8. Cabral, Luis M. B., 1995. "Conjectural variations as a reduced form," Economics Letters, Elsevier, vol. 49(4), pages 397-402, October.
    9. A. M. Azzam & E. Pagoulatos, 1990. "Testing Oligopolistic And Oligopsonistic Behaviour: An Application To The Us Meat-Packing Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(3), pages 362-370.
    10. Karen Clay & Werner Troesken, 2003. "Further Tests of Static Oligopoly Models: Whiskey, 1882-1898," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 151-166, 06.
    11. Beghin, John C. & Foster, William E., 1992. "Political Criterion Functions and the Analysis of Wealth Transfers," Staff General Research Papers 1568, Iowa State University, Department of Economics.
    12. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    13. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
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