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Comparing competitive toughness to benchmark outcomes in retail oligopoly pricing
Author(s) -
Sakamoto Ryo,
Stiegert Kyle
Publication year - 2017
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/agr.21537
Subject(s) - economics , benchmark (surveying) , oligopoly , market power , microeconomics , competition (biology) , econlit , imperfect competition , product differentiation , perfect competition , econometrics , industrial organization , cournot competition , ecology , geodesy , medline , law , geography , political science , biology , monopoly
Past research on pricing in imperfectly competitive markets conventionally assumes that competition operates through a specific quantity or a price game. However, most markets do not function in a manner consistent with a single static benchmark. Methods to overcome this problem have largely been rejected by the research community (i.e., conjectural variations). The primary objective of our research is to introduce a new methodology for measuring imperfect competition under product differentiation in consumer goods. We develop the empirical procedures for estimating a competitive toughness model as proposed by d'Aspremont, Dos Santos Ferreira, and Gérard‐Varet. This approach presents a theoretically grounded procedure that measures market power in an empirically tractable framework. We estimate the proposed model on the retail market for ground coffee. Our results suggest that market power is understated in a model that imposes the restriction of Bertrand pricing. The results suggest that this could be a promising approach for use in many applications. [EconLit citations: D43, L13, K21]