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1 – 10 of 63The 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…
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.
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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…
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.
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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.
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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 sector, apart…
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.
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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 oligopoly power…
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.
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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 government…
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.
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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 resides with…
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.
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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 buyer…
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.
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Abdulai Fofana and Shabbar Jaffry
The purpose of this paper is to investigate market competition for three product types of salmon (smoke, fresh and whole salmon) to understand whether supermarkets are exercising…
Abstract
Purpose
The purpose of this paper is to investigate market competition for three product types of salmon (smoke, fresh and whole salmon) to understand whether supermarkets are exercising market power over salmon consumers in the UK retail market.
Design/methodology/approach
Competition and the corresponding pricing conduct among supermarkets are tested by applying dynamic structural simultaneous system equations and using similar data set used by Jaffry et al. (2003).
Findings
The results indicate that the market is competitive for fresh fillets and whole salmon but retailers appeared to exert some level of market power for smoke salmon. The hypothesis that market power is the same for all three products in the study was rejected; further indicating that the market for fresh products are competitive while retailers may be exercising market power over consumers for smoke salmon.
Research limitations/implications
Current data limitations did not allow the investigation to cover the past few years in the modelling process. However, the results are still relevant as there have been no major structural changes in aquaculture products retailing landscape in the recent past.
Practical implications
Concerns over the supermarkets’ exercise of market power over consumers have prompted the competition authorities to continue investigating the situation in the UK supermarket sector since 1996. The most recent investigation by competition authorities was in 2006. In all cases, no evidence of market power was found despite increased market concentration. Results from this study generally uphold the claim of the competition authorities in the UK.
Originality/value
This is the first study to use a model within a structural econometric framework of firms to test for competitiveness of salmon products in the UK market place.
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Thomas Kopp, Bernhard Brümmer, Zulkifli Alamsyah and Raja Sharah Fatricia
In Indonesia, rubber is the most valuable export crop produced by small scale agriculture and plays a key role for inclusive economic development. This potential is likely to be…
Abstract
Purpose
In Indonesia, rubber is the most valuable export crop produced by small scale agriculture and plays a key role for inclusive economic development. This potential is likely to be not fully exploited. The observed concentration in the crumb rubber processing industry raises concerns about the distribution of export earnings along the value chain. Asymmetric price transmission (APT) is observed. The paper aims to discuss these issues.
Design/methodology/approach
This study investigates the price transmission between international prices and the factories’ purchasing prices on a daily basis. An auto-regressive asymmetric error correction model is estimated to find evidence for APT. In a subsequent step the rents that are redistributed from factories to farmers are calculated. The study then provides estimations of the size of this redistribution under different scenarios.
Findings
The results suggest that factories do indeed transmit prices asymmetrically, which has substantial welfare implications: around USD3 million are annually redistributed from farmers to factories. If the price transmission was only half as asymmetric as it is observed, the majority of this redistribution was re-diverted.
Originality/value
This study combines the approaches of non-parametric and parametric estimation techniques of estimating APT processes with a welfare perspective to quantify the distributional consequences of this intertemporal marketing margin manipulation. Especially the calculation of different scenarios of alternative price transmissions is a novelty. The data set of prices on such a disaggregated level and high frequency as required by this approach is also unique.
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