Welfare Implications of Oligopoly in U.S. Food Manufacturing: Comment

Abstract

In a recent paper in this Journal, Gisser evaluated the consequences for economic welfare of the oligopolistic structure of the U.S. foodmanufacturing sector, examining both the usual static welfare losses (due to prices being above marginal cost in less-than-perfectly competitive markets), and the dynamic consequences of the linkage between industrial concentration and longterm productivity growth. It is on the dynamic effects that we will focus in this comment, since, although in theory these seem likely to be quantitatively more significant than the static losses (rectangles versus triangles), they have hitherto received only a fraction of the empirical attention that has been devoted to the topic. Gisser's contribution is thus particularly welcome. Our comment will be in three parts: first, we will qualify Gisser's contention that increasingly oligopolistic structure does not harm consumers in the food industry; then we will examine the welfare implications, ignored by Gisser, of reduced concentration; and finally we will note some caveats that should be applied to this sort of analysis.