Thursday, February 16, 2017
Lopez, Rigoberto A. (University of Connecticut) ; Zheng, Hualu (University of Connecticut) and Azzam, Azzeddine (University of Nebraska-Lincoln) discuss Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach.
ABSTRACT: This study estimates mark-ups and oligopoly power for U.S. food industries using a stochastic frontier (SF; Kumbhakar, Baardsen and Lien, 2012; Baraigi and Azzam, 2014) approach, where mark-ups are treated as systematic deviations from a marginal cost pricing frontier. We apply the analysis to 36 U.S. food industries using NBER-CES Manufacturing Industry Database (2014), which covers a span of 31 years from 1979 to 2009. Empirical results show that all the food industries in the sample exercise at least some degree of oligopoly power, but most in a moderate manner. The estimated mean Lerner index is approximately 0.06, generally much lower than obtained using the conventional NEIO approaches. The SF model used provides a novel and promising framework to test and measure the degree of market power in agricultural and food markets.