Measuring Market Power and Cost‐efficiency Effects of Industrial Concentration

TLDR

The paper extends Appelbaum’s price‑taking framework to explicitly account for concentration, aiming to disentangle market‑power from cost‑efficiency effects. The extended model is applied to US beef‑packing industry data to empirically illustrate how concentration can be incorporated into the analysis. Empirical results reveal oligopsonistic market power and slaughter‑cost efficiency, with the cost‑efficiency effect exceeding the market‑power effect.

Abstract

In this paper I show how Appelbaum's framework for testing price‐taking behavior in a single industry can be formally extended to consider concentration explicitly. In so doing, I separate the market power effect of concentration from its cost‐efficiency effect. Data from the US beef‐packing industry are used to illustrate an empirical application of the model. The findings support oligopsonistic market power and slaughter‐cost efficiency in the industry. However, the cost‐efficiency effect outweighs the market‐power effect.