Market Power with Dynamic Invertory Constraints: The Bias in Standard Measures

Lynn Hunnicutt and David Aadland ()

No 2002-15, Working Papers from Utah State University, Department of Economics

Abstract: This paper incorporates inventory dynamics into an analysis of market power. Using a model in which each firm accounts for the effect of its current action on the current and future actions of itself and its competitors, we show that measures of market power that ignore inventory dynamics are biased. We then apply the model to the beef-packing industry using annual data on cattle stocks, slaughter and prices from 1933-1999. Our estimates suggest that static measures overestimate the amount of market power exerted by beef-packing firms.

Date: Written 2002-08

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http://www.econ.usu.edu/RePEc/usu/pdf/ERI2002-15.pdf First version, 2002 (application/pdf)

Related works:
Working Paper: Market Power with Dynamic Inventory Constraints: The Bias in Standard Measures (2002)
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