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Stochastic Frontier Estimation of Market Power in the Food Industries

Author

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  • Rigoberto A. Lopez
  • Xi He
  • Azzeddine Azzam

Abstract

We use a modified version of the stochastic frontier model to estimate oligopoly markups above the perfectly competitive frontier, separating out deterministic markups from purely stochastic markups. Using data from 42 US food processing industries between 1990 and 2010, empirical results indicate a widespread incidence of oligopoly power, with Lerner indexes averaging approximately 21%. Further, the estimated markups increase with industrial concentration but decrease with price elasticities and imports. Finally, the estimated Lerner indexes are in the range of previous food industry estimates using New Empirical Industrial Organization (NEIO) models.

Suggested Citation

  • Rigoberto A. Lopez & Xi He & Azzeddine Azzam, 2018. "Stochastic Frontier Estimation of Market Power in the Food Industries," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(1), pages 3-17, February.
  • Handle: RePEc:bla:jageco:v:69:y:2018:i:1:p:3-17
    DOI: 10.1111/1477-9552.12219
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    File URL: https://doi.org/10.1111/1477-9552.12219
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    Cited by:

    1. Panagiotou, Dimitrios & Stavrakoudis, Athanassios, 2018. "A stochastic frontier analysis approach for estimating market power in the major U.S. meat export markets," MPRA Paper 96128, University Library of Munich, Germany.
    2. PAulo Roberto Scalco & Benjamin M. Tabak & Anderson Mutter Teixeira, 2019. "The Dark Side of Prudential Measures," Working papers - Textos para Discussao do Curso de Ciencias Economicas da UFG 078, Curso de Ciencias Economicas da Universidade Federal de Goias - FACE.

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