Testing price taking behavior

Appelbaum, Elie

doi:10.1016/0304-4076(79)90075-7

Cited by 119 publications

(34 citation statements)

References 5 publications

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“…In the context of agency theory, these findings support the view that owners, operating through their Boards, have a degree of control over these firms' managers for these time periods. Appelbaum (1979Appelbaum ( , 1982, is extended here to permit measurement of monopsony power as well. Data from the U.S. beef packing industry are examined.…”

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confidence: 99%

Estimating the Degree of Market Power in the Beef Packing Industry

Schroeter¹

1988

The Review of Economics and Statistics

243

125

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A technique for assessing the degree of monopoly power, developed by Appelbaum (1979Appelbaum ( , 1982, is extended here to permit measurement of monopsony power as well. Data from the U.S. beef packing industry are examined. The results reveal small, but statistically significant monopoly/monopsony price distortions in slaughter cattle and wholesale beef markets but, in spite of a recent trend toward heightened concentration in the industry, give no indication that performance has become appreciably less competitive of late. Disciplines Agricultural and Resource Economics | Growth and Development | Other Economics CommentsThis is is an article from Review of Economics and Statistics 70 (1988) Furthermore, this study supports the view that Boards provide accounting profit maximization incentives to the CEO, which suggests that managers, as viewed by the Board, need this incentive to align their interests with those of the Board. We find that stock returns are not related to our measure of compensation. This finding indicates that either (1) Boards are not themselves value maximizers, and therefore, find no interest in aligning the CEO with this goal, or (2) Boards are value maximizers, but provide the CEO with other incentives for value maximization not included in our compensation measure such as stock options and stock ownership.Finally, the results suggest that Boards of Directors have goals, as revealed by their compensation policies for the CEO, which are consistent with accounting profit maximization, and that are not consistent with revenue maximization. In the context of agency theory, these findings support the view that owners, operating through their Boards, have a degree of control over these firms' managers for these time periods. Appelbaum (1979Appelbaum ( , 1982, is extended here to permit measurement of monopsony power as well. Data from the U.S. beef packing industry are examined. The results reveal small, but statistically significant monopoly/monopsony price distortions in slaughter cattle and wholesale beef markets but, in spite of a recent trend toward heightened concentration in the industry, give no indication that performance has become appreciably less competitive of late.

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mentioning

confidence: 99%

Estimating the Degree of Market Power in the Beef Packing Industry

Schroeter¹

1988

The Review of Economics and Statistics

243

125

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“…This diversity suggests that imposing constancy over time, or equality among firms on markup behavior masks substantial heterogeneity. In the top panel of Table 8, for example, we see that output quantity elasticities tend to have the same sign 195919741979FORD 195919741979CHRYSLER 195919741979GM 195919741979FORD 195919741979CHRYSLER 195919741979 for GM and Ford, but these often differ from Chrysler; output quantity elasticity estimates differ in sign among automakers for the UN, CPI and EXR variables, but have the same (negative) sign in the case of GAS. The idiosyncratic 1959 estimates for Chrysler reflect in part a computational difficulty we experienced in obtaining a reduced-form solution to Chrysler's output price, output quantity and markup equations in that year.…”

Section: Equation -25mentioning

confidence: 95%

Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler

Berndt

Friedlaender²,

Chiang

1990

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Our purpose in this paper is to develop and estimate a model of the US automobile industry that can be used to analyze the secular and cyclical strategic markup behavior and market structure of its three major domestic producers --GM, Ford and Chrysler. The principal novelty in this paper is not such much in the underlying theory (we build on what Timothy Bresnahan has called the "new empirical industrial organization" literature), but rather in the actual empirical implementation of a multi-equation model sufficiently general to permit the testing of a variety of specific behavioral postulates associated with the interdependent strategic profit-maximizing behavior of GM, Ford and Chrysler.Using firm-specific annual data from 1959-83, we find that at usual levels of statistical significance, we cannot reject Cournot quantity-setting behavior, nor can we reject leader/follower quantity-setting behavior with GM as leader and Ford and Chrysler as followers; the parameter restrictions associated with leader/follower behavior are slightly more binding than those with Cournot, although the difference is not decisive. In terms of the cyclical analysis of market behavior, our most striking result is the great diversity of behavior we find among GM, Ford and Chrysler. Depending on which firm is being analyzed, there is support for the pro-cyclical "conventional wisdom" of markups (GM and Ford), as well as for the counter-cyclical "revisionist" literature (Chrysler). Diversity, rather than constancy and homogeneity, best characterizes firms in this industry.

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“…An industry maximizes profit by choosing optimal quantities of inputs subject to given prices of inputs and the profit maximization model of an industry is formulated as [1]:…”

Section: The Monopolist's Mark-upmentioning

confidence: 99%

“…Due to some criticism of Hall's approach to its empirical application, Roeger modified Hall's original method [8]. Appelbaum [1] in his analysis, unlike other studies in which the degree of monopoly is measured, offers a framework for testing the price using a behavioral hypothesis for the industry and applying it to the U.S. crude petroleum and natural gas industry. This framework for analyzing a non-competitive industry or firm is the basis for our paper.…”

Section: Introductionmentioning

confidence: 99%

Monopolist’s mark-up and the elasticity of substitution

Vrankić

Krpan

Herceg

2017

Croat. Oper. Res. Rev.

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Abstract. This paper analyzes the mark-up of the price of a product over marginal costs for a monopolist using Appelbaum's theoretical model. The profit maximization model of an industry that uses the monopolist's product as its input is formulated. Our goal is to express the monopolist's mark-up as a function of the elasticity of substitution for the respective industry and to analyze how changes in the elasticity of substitution affect the mark-up ratio. Consequently, the CES production function along with its substitution parameter is chosen. An analytical description of changes in the elasticity of substitution and its influence on the monopolist's mark-up is given. All scenarios are supplemented by geometrical illustrations, economic interpretations and numerical examples.

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Testing price taking behavior

Cited by 119 publications

References 5 publications

Estimating the Degree of Market Power in the Beef Packing Industry

Estimating the Degree of Market Power in the Beef Packing Industry

Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler

Monopolist’s mark-up and the elasticity of substitution

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