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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Ani L. Katchova & Ian M. Sheldon & Mario J. Miranda, 2005. "A dynamic model of oligopoly and oligopsony in the U.S. potato-processing industry," Agribusiness, John Wiley & Sons, Ltd., vol. 21(3), pages 409-428.
  • Handle: RePEc:wly:agribz:v:21:y:2005:i:3:p:409-428
    DOI: 10.1002/agr.20055
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    References listed on IDEAS

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    Cited by:

    1. Adjemian, Michael & Brorsen, B. Wade & Hahn, William & Saitone, Tina L. & Sexton, Richard J., 2016. "Thinning Markets in U.S. Agriculture," Economic Information Bulletin 232928, United States Department of Agriculture, Economic Research Service.
    2. O'Donoghue, Ted & Rabin, Matthew, 2006. "Optimal sin taxes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1825-1849, November.
    3. Carlo Russo, 2012. "Estimating Market Power with Weak A Priori Information: An Exploratory Approach to the Model-Specification Problem," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(4), pages 339-354, June.
    4. Majid Ahmadian & M.A.Motafaker Azad, 2006. "The Theory of Concentration Oligopsony," Iranian Economic Review, Economics faculty of Tehran university, vol. 11(1), pages 81-92, winter.
    5. Guci, Ledia & Brown, Mark G., 2007. "Changes in the Structure of the Florida Processed Orange Industry and Potential Impacts on Competition," Research Papers 2007 36811, Florida Department of Citrus.

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