Does higher market power necessarily reduce efficiency? Evidence from Chinese rice processing enterprises

Jiawa Dai, Yuchen Feng, Ziuqing Wang and Guang Yuan

International Food and Agribusiness Management Review, 2021, vol. 24, issue 01

Abstract: This study evaluates the market power and cost efficiency of China’s rice processing firms through a stochastic frontier cost function. The effect of market power on cost efficiency is tested using the two-stage ordinary least squares method and a Hausman-Taylor type instrumental variable. On average, firms in the industry have weak market power but high cost efficiency, which has been declining since the 2008 global financial crisis. Firms with stronger market power exhibit higher cost efficiency, contradicting the quiet life hypothesis. This effect is more significant for firms with weaker market power after the global financial crisis. The enhancement of market power may help save resources for improving management and efficiency for Chinese rice processing industry

Keywords: Crop; Production/Industries (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ifaamr:308829

DOI: 10.22004/ag.econ.308829

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