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Marketing Margins And Market Power In The Australian Dairy Processing And Retailing Sectors

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  • O'Donnell, Christopher J.

Abstract

We use a New Empirical Industrial Organisation (NEIO) approach to estimate industry marketing margins for several Australian dairy products. Our model allows for differences in input- and outputmarket conjectural elasticities under the assumption of a fixed proportions production technology. Other assumptions on the production technology include the use of a single agricultural input to produce multiple outputs, and substitutability between agricultural and non-agricultural inputs. Two alternative methods are used to decompose the price of manufacturing milk into the prices of components used to produce different manufacturing milk products. We estimate margins equations for carton milk, wholemilk powder (WMP), butter, cheese and skim-milk powder (SMP) using state-level data. Nonlinear least squares is used to impose a number of inequality constraints implied by economic theory. The results suggest that, in price-deregulated markets, only three market intermediaries possess market power: carton milk retailers possess market power in output markets; carton milk processors possess market power in both input and output markets; and butter processors possess market power in input markets.

Suggested Citation

  • O'Donnell, Christopher J., 1999. "Marketing Margins And Market Power In The Australian Dairy Processing And Retailing Sectors," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 124502, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare99:124502
    DOI: 10.22004/ag.econ.124502
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    2. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057, Elsevier.
    3. Garth J. Holloway, 1991. "The Farm-Retail Price Spread in an Imperfectly Competitive Food Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(4), pages 979-989.
    4. 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 158-162, February.
    5. Joyce J. Wann & Sexton Richard J., 1992. "Imperfect Competition in Multiproduct Food Industries with Application to Pear Processing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 980-990.
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