Measurement of market power of agricultural industrial organizations in China: evidence from the Stochastic Frontier Approach

Abstract

ABSTRACTThe growing agricultural industry organizations are reshaping agricultural competition, but there is little research analysing the market power of these organizations. This paper aims to bridge this gap by utilizing the Stochastic Frontier Approach (SFA) and data from the 2015 China Micro and Small Enterprise Survey (CMES) to estimate the market power of Chinese agricultural industry organizations. The research findings reveal that these organizations possess substantial market power, as evidenced by an average Lerner Index of 45%. When examining different regions, it is observed that the average Lerner Index in Shanxi and Shanghai surpasses 60%, while in other regions, the average Lerner Index is below 50%. Furthermore, when considering various types of organizations, the average Lerner Index for farmer cooperatives and agricultural enterprises is 45% and 46% respectively. This study provides empirical evidence from developing countries that supports the theory of agricultural imperfect competition and contributes to a deeper understanding of the development of these agricultural industry organizations.