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Social Welfare and the Market Power-Efficiency Tradeoff in U.S. Food Processing: A Note

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  • Lopez Rigoberto A

    (Department of Agricultural Economics, University of Connecticut, Storrs, Connecticut, USA)

  • Lirón-España Carmen

    (Department of Telecommunications & Energy of Massachusetts, Boston, Massachusetts, USA)

Abstract

This article computes the welfare changes from increases in industrial concentration in a sample of 35 U.S. food manufacturing industries, taking into account oligopoly power and efficiency effects. It is estimated that a 1% across-the-board increase in the Herfindahl index would lead to an increase in aggregate social welfare (with increases in 74% of the industries), nearly neutral consumer welfare effects, and increases in producer welfare due to efficiency gains that are not passed on. The results call into question the conventional wisdom that considers welfare losses from market power without considering potential gains in production efficiency.

Suggested Citation

  • Lopez Rigoberto A & Lirón-España Carmen, 2002. "Social Welfare and the Market Power-Efficiency Tradeoff in U.S. Food Processing: A Note," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-10, October.
    • Handle: RePEc:bpj:bjafio:v:1:y:2002:i:1:n:5
    DOI: 10.2202/1542-0485.1007
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    References listed on IDEAS

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    1. Carmen Liron-Espana & Rigoberto A. Lopez, 2001. "When is Concentration Beneficial?," Food Marketing Policy Center Research Reports 062, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
    3. Bhuyan, Sanjib & Lopez, Rigoberto A., 1995. "Welfare Losses Under Alternative Oligopoly Regimes: The U.S. Food and Tobacco Manufacturing Industries," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 27(2), pages 577-587, December.
    4. Everett B. Peterson & John M. Connor, 1995. "A Comparison of Oligopoly Welfare Loss Estimates for U.S. Food Manufacturing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 300-308.
    5. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275.
    6. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(2), pages 115-126, March.
    7. Clarke, Roger & Davies, Stephen W, 1982. "Market Structure and Price-Cost Margins," Economica, London School of Economics and Political Science, vol. 49(195), pages 277-287, August.
    8. Bhuyan, Sanjib & Lopez, Rigoberto A., 1995. "Welfare Losses Under Alternative Oligopoly Regimes: The U.S. Food And Tobacco Manufacturing Industries," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 27(2), pages 1-11, December.
    9. Azzam, Azzeddine M, 1997. "Measuring Market Power and Cost-Efficiency Effects of Industrial Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 377-386, December.
    10. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
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