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Abstract

Since the late 1980s, the analysis of market power in the food industries has shifted from analyzing market concentration (structure) towards empirically measuring how far a market diverges from perfect competition (conduct). The New Empirical Industrial Organization (NEIO; usually offspring of the work of Appelbaum, 1982, or Bresnahan, 1982) has dominated the food economics literature on market power in the past 25 years (see Kaiser and Suzuki, 2006, for a summary of NEIO applications to food industries) and continues to do so (Cakir and Balagtas, 2012; Hovhannisyan and Gould, 2012; Cleary and Lopez, 2014). NEIO studies, in general, find a significant degree of oligopoly power in the food industries (Bhuyan and Lopez, 1997; Lopez, Azzam and Liron, 2002; Sheldon and Sperling, 2003). This study estimates mark-ups and oligopoly power for U.S. food industries using a stochastic frontier (SF; Kumbhakar, Baardsen and Lien, 2012; Baraigi and Azzam, 2014) approach, where mark-ups are treated as systematic deviations from a marginal cost pricing frontier. We apply the analysis to 36 U.S. food industries using NBER-CES Manufacturing Industry Database (2014), which covers a span of 31 years from 1979 to 2009. Empirical results show that all the food industries in the sample exercise at least some degree of oligopoly power, but most in a moderate manner. The estimated mean Lerner index is approximately 0.06, generally much lower than obtained using the conventional NEIO approaches. The SF model used provides a novel and promising framework to test and measure the degree of market power in agricultural and food markets.

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