Estimating bilateral market power of processors and retailers in the U.S. beef industry

Abstract

AbstractThis paper estimates the full bilateral market power of processors and retailers in the U.S. beef industry. Our full bilateral imperfect competition model allows potential market power exertion from all adjacent upstream and downstream markets of processors and retailers. Empirical results show the presence of market power from processors and retailers in both output and input procurement markets of the U.S. beef industry. Estimates of conjectural elasticities and market power indices suggest that processors’ market power exertion is greater than the exertion of retailers’ market power in the U.S. beef industry. Results of the goodness‐of‐fit statistics indicate that flexible frameworks work better than restrictive models in representing the bilateral market structure. Estimates of market power parameters and market power indices are sensitive to the choice of market structure model as well as functional forms of production function. These findings indicate that any erroneous assumptions on market structure and functional form of production function may result in misleading estimates of market power. [EconLit citations: D43, L11, L13, Q13].