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A dynamic model of oligopoly and oligopsony in the U.S. potato-processing industry

  • Ani L. Katchova

    (Department of Agricultural and Consumer Economics, University of Illinois, 1301 West Gregory Drive, Urbana, IL 61801)

  • Ian M. Sheldon

    (Department of Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH 43210)

  • Mario J. Miranda

    (Department of Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH 43210)

In this paper, we estimate oligopoly and oligopsony price distortions in the U.S. potato chips and frozen French fries sectors, based on a linear-quadratic, multi-period optimization model of processors that face quadratic adjustment costs associated with a change in the processed quantity of input. Based on this model, we are able to derive a parameter that nests various types of firm conduct, ranging from price taking through Nash-Cournot behavior to collusion. In addition, we estimate market conduct and associated price distortions in a sub-game perfect, dynamic-feedback model, and compare the results with those derived from an open-loop model. The results indicate that the behavior of potato-processing firms is much closer to price taking than to collusion. Moreover, we find that price distortions due to oligopsony in the purchase of potatoes are smaller than oligopoly price distortions in either the potato chips or the frozen French fries sectors. [EconLit citations: L13, Q13.] © 2005 Wiley Periodicals, Inc. Agribusiness 21: 409-428, 2005.

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File URL: http://hdl.handle.net/10.1002/agr.20055
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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 21 (2005)
Issue (Month): 3 ()
Pages: 409-428

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Handle: RePEc:wly:agribz:v:21:y:2005:i:3:p:409-428
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
  2. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
  3. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September.
  4. Deodhar, Satish Y. & Sheldon, Ian M., 1996. "Estimation Of Imperfect Competition In Food Marketing: A Dynamic Analysis Of The German Banana Market," Journal of Food Distribution Research, Food Distribution Research Society, vol. 27(3), October.
  5. Karp, Larry & Perloff, Jeffrey M, 1988. "Open-loop and feedback models of dynamic oligopoly," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7pn779rc, Department of Agricultural & Resource Economics, UC Berkeley.
  6. Pindyck, Robert S., 1984. "The measurement of monopoly power in dynamic markets," Working papers 1540-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Hunnicutt Lynn & Aadland David, 2003. "Inventory Constraints in a Dynamic Model of Imperfect Competition: An Application to Beef Packing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-24, March.
  8. Margaret E. Slade, 1995. "Empirical Games: The Oligopoly Case," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 368-402, May.
  9. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
  10. Haskel, Jonathan & Martin, Christopher, 1994. "Capacity and Competition: Empirical Evidence on UK Panel Data," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 23-44, March.
  11. Schroeter, John R. & Azzam, Azzeddine M., 1990. "Measuring Market Power in Multi-Product Oligopolies: The U.S. Meat Industry," Staff General Research Papers 11112, Iowa State University, Department of Economics.
  12. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
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  14. Roberts, M.J. & Samuelson, L., 1988. "An Empirical Analysis Of Dynamic, Non-Price Competition In An Oligopolistic Industry," Papers 3-88-14, Pennsylvania State - Department of Economics.
  15. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
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  17. Timothy J. Richards & Paul M. Patterson & Ram N. Acharya, 2001. "Price Behavior in a Dynamic Oligopsony: Washington Processing Potatoes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 259-271.
  18. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
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