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

Author

Listed:
  • Richard J. Sexton

    (Department of Agricultural and Resource Economics, University of California, Davis, Davis, California 95616)

  • Mingxia Zhang

    (Department of Agricultural and Resource Economics, University of California, Davis, Davis, California 95616)

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.

Suggested Citation

  • Richard J. Sexton & Mingxia Zhang, 2001. "An assessment of the impact of food industry market power on U.S. consumers," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 59-79.
    • Handle: RePEc:wly:agribz:v:17:y:2001:i:1:p:59-79
    DOI: 10.1002/1520-6297(200124)17:1<59::AID-AGR1003>3.0.CO;2-D
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    References listed on IDEAS

    as
    1. Gasmi, F & Laffont, J J & Vuong, Q, 1992. "Econometric Analysis of Collusive Behavior in a Soft-Drink Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 277-311, Summer.
    2. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    3. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
    4. Richard T. Rogers & Richard J. Sexton, 1994. "Assessing the Importance of Oligopsony Power in Agricultural Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(5), pages 1143-1150.
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