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A dynamic model of oligopoly and oligopsony in the U.S. potato-processing industry

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Author Info

  • Ani L. Katchova

    (Department of Agricultural and Consumer Economics, University of Illinois, 1301 West Gregory Drive, Urbana, IL 61801)

  • Ian M. Sheldon

    (Department of Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH 43210)

  • Mario J. Miranda

    (Department of Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH 43210)

Abstract

In this paper, we estimate oligopoly and oligopsony price distortions in the U.S. potato chips and frozen French fries sectors, based on a linear-quadratic, multi-period optimization model of processors that face quadratic adjustment costs associated with a change in the processed quantity of input. Based on this model, we are able to derive a parameter that nests various types of firm conduct, ranging from price taking through Nash-Cournot behavior to collusion. In addition, we estimate market conduct and associated price distortions in a sub-game perfect, dynamic-feedback model, and compare the results with those derived from an open-loop model. The results indicate that the behavior of potato-processing firms is much closer to price taking than to collusion. Moreover, we find that price distortions due to oligopsony in the purchase of potatoes are smaller than oligopoly price distortions in either the potato chips or the frozen French fries sectors. [EconLit citations: L13, Q13.] © 2005 Wiley Periodicals, Inc. Agribusiness 21: 409-428, 2005.

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File URL: http://hdl.handle.net/10.1002/agr.20055
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 21 (2005)
Issue (Month): 3 ()
Pages: 409-428

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Handle: RePEc:wly:agribz:v:21:y:2005:i:3:p:409-428

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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References

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  1. Karp, Larry S. & Perloff, Jeffrey M., 1993. "Open-loop and feedback models of dynamic oligopoly," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 369-389, September.
  2. 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.
  3. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
  4. Haskel, Jonathan & Martin, Christopher, 1994. "Capacity and Competition: Empirical Evidence on UK Panel Data," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 23-44, March.
  5. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September.
  6. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  7. Roberts, M.J. & Samuelson, L., 1988. "An Empirical Analysis Of Dynamic, Non-Price Competition In An Oligopolistic Industry," Papers 3-88-14, Pennsylvania State - Department of Economics.
  8. Pindyck, Robert S., 1984. "The measurement of monopoly power in dynamic markets," Working papers 1540-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Hunnicutt Lynn & Aadland David, 2003. "Inventory Constraints in a Dynamic Model of Imperfect Competition: An Application to Beef Packing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-24, March.
  10. Timothy J. Richards & Paul M. Patterson & Ram N. Acharya, 2001. "Price Behavior in a Dynamic Oligopsony: Washington Processing Potatoes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 259-271.
  11. repec:cdl:agrebk:440237 is not listed on IDEAS
  12. 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.
  13. Deodhar, Satish Y. & Sheldon, Ian M., 1996. "Estimation Of Imperfect Competition In Food Marketing: A Dynamic Analysis Of The German Banana Market," Journal of Food Distribution Research, Food Distribution Research Society, vol. 27(3), October.
  14. Friedman, James, 1993. "Oligopoly theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 11, pages 491-534 Elsevier.
  15. Schroeter, John R. & Azzam, Azzeddine M., 1990. "Measuring Market Power in Multi-Product Oligopolies: The U.S. Meat Industry," Staff General Research Papers 11112, Iowa State University, Department of Economics.
  16. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  17. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
  18. Margaret E. Slade, 1995. "Empirical Games: The Oligopoly Case," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 368-402, May.
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Citations

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Cited by:
  1. Carlo Russo, 2012. "Estimating Market Power with Weak A Priori Information: An Exploratory Approach to the Model-Specification Problem," Review of Industrial Organization, Springer, vol. 40(4), pages 339-354, June.
  2. Guci, Ledia & Brown, Mark G., 2007. "Changes in the Structure of the Florida Processed Orange Industry and Potential Impacts on Competition," Research Papers 2007 36811, Florida Department of Citrus.
  3. O'Donoghue, Ted & Rabin, Matthew, 2006. "Optimal sin taxes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1825-1849, November.
  4. Majid Ahmadian & M.A.Motafaker Azad, 2006. "The Theory of Concentration Oligopsony," Iranian Economic Review, Economics faculty of Tehran university, vol. 11(1), pages 81-92, winter.

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