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Measuring Market Power and Cost‐efficiency Effects of Industrial Concentration[Note 1. I would like to thank Severin Borenstein, David Rosenbaum, ...]
Author(s) -
Azzam Azzeddine M.
Publication year - 1997
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00054
Subject(s) - market power , market efficiency , cost efficiency , econometrics , industrial organization , economics , microeconomics , power (physics) , market concentration , market structure , computer science , financial economics , physics , monopoly , operating system , quantum mechanics
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.