Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef
AbstractEconometric 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 InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1777.
Date of creation: 01 Jan 2000
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Publication status: Published in Southern Economic Journal, January 2000, vol. 66 no. 3, pp. 526-547
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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- John R. Schroeter & Azzeddine M. Azzam, & Mingxia Zhang, 2000. "Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 526-547, January.
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