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Market Power with Dynamic Invertory Constraints: The Bias in Standard Measures


  • Lynn Hunnicutt
  • David Aadland


This paper incorporates inventory dynamics into an analysis of market power. Using a model in which each firm accounts for the effect of its current action on the current and future actions of itself and its competitors, we show that measures of market power that ignore inventory dynamics are biased. We then apply the model to the beef-packing industry using annual data on cattle stocks, slaughter and prices from 1933-1999. Our estimates suggest that static measures overestimate the amount of market power exerted by beef-packing firms.

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  • Lynn Hunnicutt & David Aadland, 2002. "Market Power with Dynamic Invertory Constraints: The Bias in Standard Measures," Working Papers 2002-15, Utah State University, Department of Economics.
  • Handle: RePEc:usu:wpaper:2002-15

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    References listed on IDEAS

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    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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