An assessment of the impact of food industry market power on U.S. consumers

Abstract

Rapidly increasing concentration in food manufacturing and retailing has heightened concern about the exercise of market power by food manufacturers and retailers to the detriment of farm producers and consumers. Although market power in the food industry has been studied rather extensively, prior analyses have focused on the exercise of selling power, either by manufacturers or retailers. This study develops a simple but flexible model of a food market channel to study both buyer (oligopsony) and seller (oligopoly) power, and the potential impacts of successive market power at multiple stages of the market channel on the magnitude and distribution of economic welfare. Simulation results show that even modest market power can enable the food marketing sector to capture large shares of the market surplus. Efficiency (deadweight) losses, however, tend to be rather small unless the level of market power is high or if market power is exercised at multiple stages of the channel. [Econ-Lit citations: L13, Q13] © 2001 John Wiley & Sons, Inc.