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Market Power with Dynamic Inventory Constraints: The Bias in Standard Measures

Author

Listed:
  • Lynn Hunnicutt

    (Utah State University)

  • David Aadland

    (Utah State University)

Abstract

This paper incorporates inventory dynamics into an analysis of market power. Using a model in which each firm accounts for the effect of its current action on the current and future actions of itself and its competitors, we show that measures of market power that ignore inventory dynamics are biased. We then apply the model to the beef-packing industry using annual data on cattle stocks, slaughter and prices from 1933-1999. Our estimates suggest that static measures overestimate the amount of market power exerted by beef-packing firms.

Suggested Citation

  • Lynn Hunnicutt & David Aadland, 2002. "Market Power with Dynamic Inventory Constraints: The Bias in Standard Measures," Industrial Organization 0211024, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0211024
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    More about this item

    Keywords

    market power dynamic cattle conjectural variations stock;

    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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