Friday, October 29, 2010
Posted by D. Daniel Sokol
Carlos F. Alves (CEF.UP, Faculdade de Economia, Universidade do Porto) and Cristina Barbot (CEF.UP, Faculdade de Economia, Universidade do Porto) ask Does market concentration of downstream buyers squeeze upstream suppliers’ market power?
ABSTRACT: Using a theoretical model, we examine both the relationship between a downstream dominant firm’s market share and an upstream monopoly’s Lerner index and the relationship between upstream and downstream price elasticities of demand, in a regulated industry context. We undertake an empirical study that confirms our theoretical predictions, namely that the market share of a leader downstream firm is significant in explaining the upstream producers’ Lerner indexes. Also in accordance with the results of the theoretical model, the Lerner index is negatively influenced by the competition that suppliers face and by the level of economies of density, amongst other variables.