Market power, ownership and technical efficiency: An empirical test for China’s food manufacturers
China Agricultural Economic Review
ISSN: 1756-137X
Article publication date: 14 November 2019
Issue publication date: 11 June 2020
Abstract
Purpose
The purpose of this paper is to estimate oligopsony power in the upstream factor market and oligopoly power in the downstream product market. On this basis, the paper intends to examine the effects of both oligopsony and oligopoly power as well as ownership on technical efficiency which were rarely discussed in previous studies.
Design/methodology/approach
First, based on the stochastic frontier production function, the paper constructs a new model that is capable to estimate oligopsony power for each observation. Second, the paper employs the popular dual stochastic frontier cost function to estimate marginal cost as well as oligopoly power. Then, the system GMM method with different sets of instrumental variables is applied to test the effects of the two-sided market power and ownership on technical efficiency.
Findings
Using unbalanced panel data at the firm level, the paper demonstrates that oligopsony power is significantly variant across different sectors. The most notable point is that oligopsony power in China’s soya and peanut oil industries is negative, while that in pork and beef industries is much stronger than those in other industries. In addition, state-owned enterprises (SOEs) are found to be less technically efficient in most of the selected industries, while SOEs with higher oligopsony power tend to be more technically efficient than non-state-owned enterprises(NSOEs), which is consistent with the quiet life hypothesis.
Originality/value
This paper sheds light mainly on three aspects. First, it proposes a new model to estimate oligopsony power for each single firm. Second, it tests the effect of oligopsony power on technical efficiency. Third, it distinguishes the differential effect of oligopsony power on technical efficiency between SOEs and NSOEs.
Keywords
Citation
Dai, J. and Li, X. (2020), "Market power, ownership and technical efficiency: An empirical test for China’s food manufacturers", China Agricultural Economic Review, Vol. 12 No. 2, pp. 275-294. https://doi.org/10.1108/CAER-08-2018-0167
Publisher
:Emerald Publishing Limited
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