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Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef

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  • John R. Schroeter
  • Azzeddine M. Azzam,
  • Mingxia Zhang

Abstract

Econometric methods for assessing the degree of market power typically rely on a maintained hypothesis of price-taking behavior on one side of the market or the other. In the analysis of bilateral oligopoly, however, one would like to leave open the question of whether buyers or sellers (or both) behave competitively while allowing for the possible exercise of market power on either side. In this paper, we address the problem of measuring market power in bilateral oligopoly. This requires that we first distinguish among three candidate equilibrium concepts: bilateral price-taking, seller price-taking, and buyer price-taking. Choosing among them comes down to a test of nonnested, nonlinear, simultaneous equation models. Our application to the U.S. wholesale market for beef, characterized by high degrees of concentration among both sellers (beef packers) and buyers (primarily retail grocery chains), reveals seller price-taking among the three candidates to be the most consistent with the data. In particular, the hypothesis of price-taking conduct on both sides of the market can be rejected. This is a conclusion that would not have been reached had we considered monopoly conduct by sellers as the only alternative to perfect competition.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 66 (2000)
Issue (Month): 3 (January)
Pages: 526-547

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Handle: RePEc:sej:ancoec:v:66:3:y:2000:p:526-547

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Steiner, Bodo E., 2007. "Formal beef alliances and alignment challenges: issues in contracting, pricing and quality," Project Report Series 7709, University of Alberta, Department of Resource Economics and Environmental Sociology.
  2. Rodrigo Zeidan & Marcelo Resende, 2009. "Measuring Market Conduct in the Brazilian Cement Industry: A Dynamic Econometric Investigation," Review of Industrial Organization, Springer, vol. 34(3), pages 231-244, May.
  3. Marsh, John M. & Brester, Gary W., 2004. "Wholesale-Retail Marketing Margin Behavior in the Beef and Pork Industries," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
  4. Asche, Frank & Nøstbakken, Linda & Tveterås, Sigbjørn, 2009. "When will trade restrictions affect producer behavior: Oligopsony power in international trade," UiS Working Papers in Economics and Finance 2009/20, University of Stavanger.
  5. Kinnucan, Henry W., 2002. "Optimal Generic Advertising In An Imperfectly Competitive Food Industry With Variable Proportions," 2002 Annual meeting, July 28-31, Long Beach, CA 19775, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Ward, Clement E., 2002. "A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking Industry," CAFRI: Current Agriculture, Food and Resource Issues, Canadian Agricultural Economics Society, issue 03.
  7. Bodo E. Steiner, 2007. "Negotiated transfer pricing: Theory and implications for value chains in agribusiness," Agribusiness, John Wiley & Sons, Ltd., vol. 23(2), pages 279-292.
  8. Scalco, Paulo Roberto & Braga, Marcelo Jose, 2014. "Measuring the Degree of Oligoposony Power in the Brazilian Raw Milk Market," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 17(2).

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