Buyer and/or seller power? An application to the Brazilian milk market

ABSTRACT

Despite its importance, the co-existence of buyer and seller power has been largely neglected in the empirical literature. In this article, we develop a stochastic frontier model to measure channel market power as deviations from a perfectly competitive frontier and decompose it into buyer and seller power. We provide an empirical illustration using milk data from five Brazilian states and find that channel market power ranges between 4% and 12% of the wholesale price, but that 75% of the market power is accounted for by retail buyer power. The methodology proposed can provide a rapid assessment of the degree of market power in other markets and a method for separating out buyer and seller power in the market channel.

KEYWORDS:

• Market power
• buyer power
• seller power
• stochastic frontier

JEL CLASSIFICATION:

• D21
• D43
• L13
• L66

Acknowledgments

The authors gratefully acknowledge the financial support of the Research Foundation of the State of Goias (FAPEG) and the Brazilian National Council for Scientific and Technological Development (CNPq), and support from the Zwick Center for Food and Resource Policy at the University of Connecticut.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For instance, the IDEAS RePEc website (https://ideas.repec.org) lists 6000 papers on oligopoly power and only 400 papers on oligopsony power since 1980, the advent of the New Empirical Industrial Organization.

Additional information

Funding

The authors gratefully acknowledge the financial support of the Research Foundation of the State of Goias (FAPEG) and the Brazilian National Council for Scientific and Technological Development (CNPq).