Estimating the degree of market power in the vegetable market in Japan

Yuki Sano,Nobuhiro Suzuki,Kentaro Kawasaki,Takeshi Sato,Harry M Kaiser

doi:10.1017/age.2021.12

Yuki Sano, Nobuhiro Suzuki + Show 3 more

Open Access

https://doi.org/10.1017/age.2021.12

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Abstract

AbstractTo adequately capture the market structure of vegetables in Japan, it is necessary to develop an oligopolistic model due to the potential market power of producers vs. retailers. We first estimate the market power between producers and retailers by extending the bilateral oligopoly model. Next, we evaluate the role of the wholesale market and its effect on economic welfare. Our results indicate that the wholesale market benefits both producers and consumers through a reduction in retail margins. This study contributes to the industrial organization literature by developing a bilateral oligopoly model and empirically measuring the wholesale market system in Japan.

Highlights

The food supply change has been increasing in concentration over time
We develop and extend the bilateral oligopoly approach pioneered by KSK to estimate the market power in the vegetable market in Japan
For equation (17), we identify the following independent variables that are hypothesized to impact the vertical market power parameter for each product i in time period t: via the wholesale markets is the sales ratio of products traded in the wholesale markets relative to all markets, top4 is the market concentration ratio of the top four producers, d2011 and d2012 are time dummy variables for the time period of the Tohoku earthquake in 2011 and an emergency demand and supply adjustment performed by the MAFF in 2012 due to the price decline (MAFF 2012), and itemi is the dummy variable for the product i

Summary

Introduction

The food supply change has been increasing in concentration over time. For example, in the European Union, the market share of the top 10 retailers increased from 26 percent in 2000 to 30.7 percent in 2011, while in the United States, the market share of the top 20 retailers has almost doubled since 1990, increasing from 35.0 percent in 1990 to 65.1 percent in 2019 (European Commission 2014; USDA ERS 2021). Retailers exercise more market power by paying a lower purchase price from farmers and a higher selling price to consumers This reduces both producer and social welfare (Bonanno, Russo, and Menapace 2018). Wholesale markets are often established and monitored by public authorities They exist in many countries such as the United States, France (Cadilhon et al 2003), Netherlands (Reid, Simmonds, and Newbold 2019), and Japan. We begin with a study of the background on the Japanese vegetable supply chain and a review of the related literature This is followed by a discussion of the theoretical framework and empirical methods used to estimate the power parameter between producers and retailers. The final section discusses the implications of the results and offers some concluding remarks

Background

Results

Discussion and conclusion