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Article
Publication date: 14 November 2019

Jiawu Dai and Xun Li

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…

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.

Details

China Agricultural Economic Review, vol. 12 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

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Article
Publication date: 28 October 2014

Jiawu Dai and Xiuqing Wang

Complaints about lower agricultural farm-gate price and higher consumer price have emerged in China in recent years. The large gap between dairy farm-gate price and…

Abstract

Purpose

Complaints about lower agricultural farm-gate price and higher consumer price have emerged in China in recent years. The large gap between dairy farm-gate price and consumer price gives rise to worries that China's dairy industry is characterized by strong degree of oligopoly. The purpose of this paper is to take the dairy processing industry as an epitome of China's food industry, and use a new approach to investigate whether it is oligopolistic and/or oligopsonistic.

Design/methodology/approach

Based on a new proposed Primal-Dual Solow Residual model, the authors first test the hypothesis that there are significant oligopoly and oligopsony powers in China's dairy sector, and the latter is stronger. The authors then turn to measure these two kinds of market power using regressions of the model.

Findings

The estimation results show that firms in the sector have both strong oligopoly and oligopsony power, but the latter is stronger than the former. Meanwhile, with the continuous reinforcement of competition in China's dairy sector, market power in both the upstream and downstream has decreased slightly.

Originality/value

This paper is the first to simultaneously test oligopoly and oligopsony power in China's dairy sector. The empirical results explicitly imply that more attention should be paid to the raw milk purchase market.

Details

China Agricultural Economic Review, vol. 6 no. 4
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 20 August 2018

Ling Ma, Alexander Nuetah and Xiuqing Wang

The purpose of this paper is to investigate the role of market power and returns to scale in the determination of farm-value share.

Abstract

Purpose

The purpose of this paper is to investigate the role of market power and returns to scale in the determination of farm-value share.

Design/methodology/approach

This paper utilizes the equilibrium displacement model to investigate the role of market power and returns to scale in the determination of farm-value share. Contrary to the current literature, the paper incorporates oligopoly power, oligopsony power and non-constant return to scale into one generalized model, which systematically enables us investigate the impacts of market power on the determination and changes of farm-value share.

Findings

The results imply that market power as well as non-constant returns to scale is central to the understanding of farm-value share. These, in turn, indicate that ignoring the impacts of market power and degree of return to scale may overestimate or underestimate the impacts of exogenous shocks on changes in farm-value share.

Originality/value

Thus, to the best of the authors’ knowledge, no literature has examined the co-existence of oligopsony power, oligopoly power as well as non-constant return to scale in farm-value share determination. This paper therefore tries to fill this gap.

Details

China Agricultural Economic Review, vol. 11 no. 1
Type: Research Article
ISSN: 1756-137X

Keywords

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Article
Publication date: 15 August 2019

Hao Lan and Xiaojin Wang

The purpose of this paper is to investigate market power in the Chinese pork supply chain. The authors aim to explain why a steady rise in prices is observed in the…

Abstract

Purpose

The purpose of this paper is to investigate market power in the Chinese pork supply chain. The authors aim to explain why a steady rise in prices is observed in the sector, apart from existing evidence on incomplete/asymmetric cost pass-through and concerns of growing concentration and consolidation in the sector.

Design/methodology/approach

This study uses a new empirical industrial organization model for both oligopoly and oligopsony power to measure the degree of market power exerted on consumers and hog farmers simultaneously.

Findings

By examining annual panel data across provinces in China, the authors find that both oligopoly and oligopsony powers exist in the pork supply chain. In particular, the authors determine that a higher degree of market power is found to influence prices paid to hog farmers than prices paid by pork consumers. Estimates of key elasticities in the Chinese pork supply chain are also updated based on the structural model estimation and the latest data.

Research limitations/implications

Due to the lack of data at a more granular level of geography, the authors are only able to estimate market power by three major economic regions.

Practical implications

The findings provide useful information for future policy analyses of Chinese food markets. First, the pork-packing industry should be of great concern in terms of market power and its influence on consumers’ and farmers’ welfare. It is essential to take into consideration market power in the pork supply chain before making any public policy regarding the pork market. Furthermore, following economic theory and experience from developed countries, large meat packers will eventually vertically control hog farmers given their stronger oligopsony power over the upstream. Vertical integration may be the next important issue in terms of food market competition. Finally, the results may also draw the government’s attention to investigating market competition in all major food markets.

Originality/value

The empirical evidence draws attention to the issue of food market competition in one of the largest and most important meat-packing markets in China. The authors hope to encourage further discussions on pork and hog market regulations and related public policies.

Details

China Agricultural Economic Review, vol. 12 no. 1
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 31 August 2012

Habtu T. Weldegebriel, Xiuqing Wang and Anthony J. Rayner

The purpose of this paper is to develop a theoretical model of price transmission from the farm to the retail sector, allowing not only for an interaction between…

Abstract

Purpose

The purpose of this paper is to develop a theoretical model of price transmission from the farm to the retail sector, allowing not only for an interaction between oligopoly power, oligopsony power and non‐constant returns to scale in industry technology, but also allowing for the market power conduct parameters to vary in response to an industry‐wide exogenous shock. Also, the degree of price transmission under imperfect competition relative to that under perfect competition is evaluated.

Design/methodology/approach

Conjectural variations are used to parameterize both seller and buyer market power conduct of the industry and then the equilibrium displacement approach is applied to solve a system of six structural equations which describe the demand for and supply of industry retail output and farm and marketing inputs.

Findings

First, it is found that given empirical values of retail output demand elasticity, of farm and marketing inputs supply elasticities, of market power conducts, and of the returns to scale measure, the degree of price transmission under imperfect competition is greater than that under perfect competition. Second, it is found that the relative degree of price transmission under imperfect competition could be greater or smaller under the assumption of a varying market power conduct than one under the alternative assumption of a constant market power conduct, depending on whether market conduct is falling or rising, respectively.

Originality/value

The paper makes two original contributions to the literature. First, it allows for an interaction between oligopoly power, oligopsony power and industry technology. Second, it allows both oligopoly and oligopsony power parameters to vary in response to industry‐wide exogenous shocks.

Details

China Agricultural Economic Review, vol. 4 no. 3
Type: Research Article
ISSN: 1756-137X

Keywords

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Article
Publication date: 31 July 2018

Luca Cacchiarelli and Alessandro Sorrentino

During the last years, the Italian pasta chain has been strongly affected by some events such as CAP reforms in the durum wheat sector that have progressively reduced…

Abstract

Purpose

During the last years, the Italian pasta chain has been strongly affected by some events such as CAP reforms in the durum wheat sector that have progressively reduced government intervention in the market and a case of anti-competitive practices against pasta makers was identified and sanctioned by the Italian Antitrust Authority. The purpose of this paper is to detect the presence of market power in the different phases of the Italian pasta supply chain.

Design/methodology/approach

The authors applied the “first-pass” test proposed by Lloyd et al. (2009) on a set of monthly price indexes series from 2000 to 2013 in order to estimate if market power exists along Italian pasta chain.

Findings

Estimated results suggest that market power exists in the Italian pasta supply chain. Precisely, the presence of market power is detected for semolina producers in 2000–2004, for pasta makers in 2005–2008 as already identified by Italian antitrust and, finally, for retailers in 2008–2013.

Research limitations/implications

The method is a “first pass” test that only allows researchers to identify the presence of market power, but it is unable to estimate the intensity of this power.

Originality/value

The paper gives a contribute on estimation of market power in a food supply chain affected by CAP reform and antitrust intervention.

Details

British Food Journal, vol. 120 no. 9
Type: Research Article
ISSN: 0007-070X

Keywords

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Article
Publication date: 11 May 2012

John Wyld, Geoffrey Pugh and David Tyrrall

The purpose of this paper is to examine the relationship between SME suppliers and large buyers, and so better inform competition policy in cases where market power

Abstract

Purpose

The purpose of this paper is to examine the relationship between SME suppliers and large buyers, and so better inform competition policy in cases where market power resides with buyers.

Design/methodology/approach

The theories of monopsony and oligopsony are applied to intermediate markets to set out a model of profit appropriation by large buyers from small suppliers. The main focus of the illustrative examples used is on the relationship between supermarkets and their suppliers.

Findings

The authors' main prediction is that powerful buyers are able to “exploit” SME suppliers by restricting their number, the price paid to individual suppliers and the quantity purchased from each supplier.

Practical implications

Governments seek to encourage small businesses because of their ability to generate innovation and create future growth opportunities. Any investigations of the continued growth of buyer power in intermediate markets should consider the effects not only upon consumer welfare but also upon the welfare of the SME sector. Governments may wish to counteract monopsonistic markets as they may inhibit SMEs that could otherwise provide innovation and growth within the economy.

Originality/value

This model gives a theoretical framework to analyse the interaction between small suppliers and large buyers. Furthermore, it may provide a counter to the argument that low consumer prices are the sole legitimate aim of competition policy.

Details

Journal of Small Business and Enterprise Development, vol. 19 no. 2
Type: Research Article
ISSN: 1462-6004

Keywords

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Article
Publication date: 4 January 2016

Fabio A. Madau, Roberto Furesi and Pietro Pulina

Buyer power can be defined as the ability to obtain trade terms more favourable than a supplier’s normal trade terms. The purpose of this paper is to estimate existence of…

Abstract

Purpose

Buyer power can be defined as the ability to obtain trade terms more favourable than a supplier’s normal trade terms. The purpose of this paper is to estimate existence of buyer power in the Italian market of fresh milk. The sector is characterised by high industrial and retail firms concentration and a significant gap between the downstream and upstream prices exists.

Design/methodology/approach

The authors applied the “first-pass” test proposed by Lloyd et al. (2009) on a set of monthly price indexes series from 2000 to 2013 in order to estimate if a buyer power exists in this sector. This in order to verify how prices are transmitted along the supply chain and to determine if buyer power contributes in conditioning the retail-producer price spread.

Findings

Estimated results suggest that buyer power exists in the Italian fresh milk supply chain and oligopsonistic behaviour affects the spread between downstream and upstream prices.

Originality/value

The paper gives a contribute on estimation of buyer power in the agro-food supply chains. However, more research needs to be carried out in order to precisely evaluate the nature and the causes of presence of buyer power.

Details

British Food Journal, vol. 118 no. 1
Type: Research Article
ISSN: 0007-070X

Keywords

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Book part
Publication date: 25 August 2006

Lori L. Taylor

Charter schools have the potential to enhance competition in the public education sector. As such, they could have a particularly significant impact in the labor market…

Abstract

Charter schools have the potential to enhance competition in the public education sector. As such, they could have a particularly significant impact in the labor market for teachers. This study uses data on more than 312,000 teachers from 483 urban Texas school districts to explore the impact of charter school competition on the compensation of teachers at traditional public schools. The analysis suggests that once charter enrollments reach critical mass, increasing competition from charter schools increases salaries for all but the most experienced teachers.

Details

Improving School Accountability
Type: Book
ISBN: 978-1-84950-446-1

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Book part
Publication date: 1 March 2007

Jing Zhang, Ellen Goddard and Mel Lerohl

In Canada, grain handling is an important agri-business that has traditionally been cooperative in nature (for example, Saskatchewan Wheat Pool). At the same time the…

Abstract

In Canada, grain handling is an important agri-business that has traditionally been cooperative in nature (for example, Saskatchewan Wheat Pool). At the same time the industry is heavily regulated. There has been a dramatic change in the structure of the industry over the past 20 years and there are currently no major cooperatives present in the market. If the “yardstick effect” hypothesis of the role of cooperatives in an imperfectly competitive market is true, the disappearance of cooperatives could result in the ability of remaining firms to exercise market power over producers. To investigate the impact of changes in ownership structure in the market, we estimated two types of pricing games that might have been played between a cooperative, Saskatchewan Wheat Pool (SWP) and an investor-owned firm (IOF), Pioneer Grain (PG) in the Saskatchewan wheat-handling market over the period 1980–2004, with different assumptions about their pricing behavior imposed. We find that SWP and PG have likely been playing a Bertrand pricing game in the market over the period. We thus conclude that SWP, as the largest cooperative in the market, likely played a “yardstick effect” role in the market.

Details

Cooperative Firms in Global Markets
Type: Book
ISBN: 978-0-7623-1389-1

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