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Quantifying the welfare costs of market power: Insights from China's agricultural market

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Listed:
  • Yang, Dan
  • Mu, Tianyuan
  • Fan, Yameng
  • Yu, Jianyu
  • Liu, Zimin

Abstract

This study introduces a novel analytical framework to assess the relationship between market power and welfare losses in agricultural markets. Leveraging firm-level data from the 2015 China Micro and Small Enterprise Survey, we construct Lerner index to measure market power and quantify its welfare implications within China's agricultural sector. Our analysis reveals a non-linear, V-shaped relationship between market power and welfare losses, indicating that welfare losses are minimized when market power lies within the range of 0.399–0.506. This pattern remains robust across multiple alternative specifications. Further mechanism investigation identifies market share and asset scale as the key channels through which market power influences welfare outcomes. These findings not only offer new empirical evidence on the nuanced role of market power but also provide actionable insights for designing targeted regulatory policies to enhance efficiency and equity in agricultural markets.

Suggested Citation

  • Yang, Dan & Mu, Tianyuan & Fan, Yameng & Yu, Jianyu & Liu, Zimin, 2025. "Quantifying the welfare costs of market power: Insights from China's agricultural market," Economic Modelling, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:ecmode:v:152:y:2025:i:c:s0264999325002391
    DOI: 10.1016/j.econmod.2025.107244
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    Keywords

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    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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