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Integrating the Structural Auction Approach and Traditional Measures of Market Power

  • Tostao, Emilio
  • Chung, Chanjin
  • Brorsen, B. Wade

This study asks the question, what is the relationship between traditional models of market power and structural auction models? An encompassing model is derived that considers both price markdowns due to bid shading during an auction and price markdowns at the industry-level due to imperfect competition. Data from a cattle procurement experimental market is used to compare the appropriateness of the two alternative theories. Regression results show that while the number of firms is more important than the number of bidders on lot of cattle in explaining pricing behavior in the game, the number of bidders does contain some unique information and should be included in the model. Both the traditional NEIO and structural auction approaches overestimated the true markdowns possibly due to failure to account for the winner's curse.

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File URL: http://purl.umn.edu/21244
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21244.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21244
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  1. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-62, February.
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  7. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Working Papers 03002, Stanford University, Department of Economics.
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  18. Ward, Clement E., 1982. "Relationship Between Fed Cattle Market Shares And Prices Paid By Beefpackers In Localized Markets," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(01), July.
  19. Azzam, Azzeddine M. & Schroeter, John R., 1995. "The Tradeoff Between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing," Staff General Research Papers 5062, Iowa State University, Department of Economics.
  20. Bourgeon, Jean-Marc & Le Roux, Yves, 1996. "Tenders for European Cereal Export Refunds: A Structural Approach," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 23(1), pages 5-26.
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  23. Catherine J. Morrison Paul, 2001. "Market and Cost Structure in the U.S. Beef Packing Industry: A Plant-Level Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 64-76.
  24. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer, vol. 20(2), pages 115-126, March.
  25. Jean-Marc Bourgeon & Yves Le Roux, 2001. "Traders' Bidding Strategies on European Grain Export Refunds: An Analysis with Affiliated Signals," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 563-575.
  26. Richard J. Sexton, 2000. "Industrialization and Consolidation in the U.S. Food Sector: Implications for Competition and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1087-1104.
  27. Koontz, Stephen R. & Garcia, Philip, 1997. "Meat-Packer Conduct In Fed Cattle Pricing: Multiple-Market Oligopsony Power," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(01), July.
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  29. Ward, Clement E., 2005. "Price Discovery and Pricing Choice Under Divergent Supply Scenarios in an Experimental Market for Fed Cattle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(03), December.
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