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Market Power and Contestability in Factor Markets: The Case of Tomato Pricing

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  • Hone, Phillip

    (Deakin University)

Abstract

Industry analysts, such as the Industry Commission (1991), have generally argued against government intervention to deal with market power in factor markets when the markets involved are highly contestable. In this paper it is shown that, under some conditions, the combination of a high degree of market concentration and contestability may create efficiency problems. The critical conditions are when industry output is small relative to the minimum efficient scale of the operations of the factor consumers and the marginal value products of the factor consumers are not constant over substantial ranges of input use. The potential policy implications of this set of circumstances are examined in the context of the Victorian tomato processing industry.

Suggested Citation

  • Hone, Phillip, 1997. "Market Power and Contestability in Factor Markets: The Case of Tomato Pricing," Economic Analysis and Policy, Elsevier, vol. 27(1), pages 59-73, March.
    • Handle: RePEc:eee:ecanpo:v:27:y:1997:i:1:p:59-73
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    More about this item

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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