Approaches and Methods for the Econometric Analysis of Market Power: A Survey and Empirical Comparison

Abstract

This study discusses two widely used approaches in the New Empirical Industrial Organization (NEIO) literature and examines the strengths and weaknesses of the Production-Theoretic Approach (PTA) and the General Identification Method (GIM) for the econometric analysis of market power in agricultural and food markets. We provide a framework that may help researchers to evaluate and improve structural models of market power. Starting with the specification of the approaches in question, we compare published empirical studies of market power with respect to the choice of the applied approach, functional forms, estimation methods and derived estimates of the degree of market power. Thereafter, we use our framework to evaluate several structural models based on PTA and GIM to measure oligopsony power in the Ukrainian dairy industry. The PTA-based results suggest that the estimated parameters of oligopsony power are significantly different from zero, while GIM-based results do not indicate any evidence of oligopsony market power in the Ukrainian dairy industry. Moreover, estimations results vary substantially due to the employed estimation procedure.Recent decades and years have been characterized by comprehensive advancements in various fields of economics, for example the recent developments in the application of theoretical and empirical concepts of NEIO. These advancements comprise, among others, the introduction of new and more flexible functional forms in econometric analysis and newly developed system estimation methods, particularly nonlinear full information methods. Given these developments, empirical studies of market power have become more sophisticated and provide new possibilities of using time-series and cross-sections data sets. These developments allow, for example, the extension of empirical models, which enables researchers to more precisely analyse and evaluate the degree of market power.A rather large number of studies are available in this research area dealing with a wide range of countries, markets or industries. Moreover, these studies are based on different information bases, that is, different aggregation levels, and employ different data frequencies and market structure models. Table 1 provides a detailed overview of existing market structure models in the field of agricultural and food markets focusing on homogenous products, and compares them with respect to their choice of functional forms, estimation methods and estimates of the degree of market power. 2 In total, 38 studies are included in the review, arranged by author's name in alphabetical order.Most empirical studies of market power have been conducted based on empirical data from developed countries such as Australia, Canada, France, Germany, and the United States.Within the empirical studies listed in Table 1, special attention has been paid to the examination of market power in beef packing industries (Schroeter). The majority of investigations involved estimating the degree of oligopoly and/or oligopsony power in markets for mea...

Forty Years of Price Transmission Research in the Food Industry: Insights, Challenges and Prospects

“…Testing for market power in agricultural markets has a long tradition (see Sheldon and Sperling, ; Perekhozhuk et al ., ). In terms of the impact of imperfect competition on price transmission, Holloway () and McCorriston et al .…”

“…Testing for market power in agricultural markets has a long tradition (see Sheldon and Sperling, 2003;Perekhozhuk et al, 2016). In terms of the impact of imperfect competition on price transmission, Holloway (1991) and McCorriston et al (1998) augment the Gardner (1975) model to examine the role of a oligopolistic food chain on price transmission.…”

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Size of Membership and Survival Patterns of Producers’ Organizations in Agriculture—Social Aspects Based on Evidence from Poland

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