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Market Power in UK Food Retailing: Theory and Evidence from Seven Product Groups

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  • Lloyd, Tim A.
  • McCorriston, Steve
  • Morgan, C. Wyn
  • Rayner, Anthony J.
  • Weldegebriel, Habtu T.

Abstract

Establishing the presence of market power in food chains has become an increasingly pertinent line of enquiry given the trend towards increasing concentration that has been observed in many parts of the world. This paper presents a theoretical model of price transmission in vertically related markets under imperfect competition. The model delivers a quasi-reduced form representation that is empirically tractable using readily available market data to test for the presence of market power. In particular, we show that the hypothesis of perfect competition can be rejected if shocks to the demand and supply function are significant and correctly signed in price transmission equations. Using a cointegrated vector autoregression, we find empirical results that are consistent with downstream market power in six out of seven food products investigated, supporting both the findings of the UK competition authority's recent investigation in to supermarkets and renewed calls for further scrutiny of supermarket behaviour by the UK's Office of Trading.

Suggested Citation

  • Lloyd, Tim A. & McCorriston, Steve & Morgan, C. Wyn & Rayner, Anthony J. & Weldegebriel, Habtu T., 2006. "Market Power in UK Food Retailing: Theory and Evidence from Seven Product Groups," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25712, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25712
    DOI: 10.22004/ag.econ.25712
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    File URL: https://ageconsearch.umn.edu/record/25712/files/cp060310.pdf
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    References listed on IDEAS

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    1. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-328, August.
    2. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
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    Cited by:

    1. Roberto Furesi & Fabio A. Madau & Pietro Pulina, 2013. "Potere della distribuzione moderna nelle filiere agroalimentari: il caso dell?olio d?oliva in Italia," Economia agro-alimentare, FrancoAngeli Editore, vol. 15(1), pages 123-143.
    2. Beatriz Velázquez & Bruno Buffaria, 2017. "About farmers’ bargaining power within the new CAP," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-13, December.
    3. Daniele CAVICCHIOLI, 2013. "Detecting market power along food supply chains: evidence from the fluid milk sector in Italy," Departmental Working Papers 2013-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 30 Jan 2013.
    4. Daniele Cavicchioli, 2018. "Detecting Market Power Along Food Supply Chains: Evidence and Methodological Insights from the Fluid Milk Sector in Italy," Agriculture, MDPI, vol. 8(12), pages 1-22, December.
    5. Zoltan Bakucs & Jan Falkowski & Imre Ferto, 2012. "Does Farm and Processing Industry Structure Matter for Price Transmission? Some Evidence From Transition Countries: A Comparison of Dairy Sectors in Hungary and Poland," CERS-IE WORKING PAPERS 1212, Institute of Economics, Centre for Economic and Regional Studies.

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