Quantifying the welfare costs of market power: Insights from China's agricultural market

Dan Yang, Tianyuan Mu, Yameng Fan, Jianyu Yu and Zimin Liu

Economic Modelling, 2025, vol. 152, issue C

Abstract: This study introduces a novel analytical framework to assess the relationship between market power and welfare losses in agricultural markets. Leveraging firm-level data from the 2015 China Micro and Small Enterprise Survey, we construct Lerner index to measure market power and quantify its welfare implications within China's agricultural sector. Our analysis reveals a non-linear, V-shaped relationship between market power and welfare losses, indicating that welfare losses are minimized when market power lies within the range of 0.399–0.506. This pattern remains robust across multiple alternative specifications. Further mechanism investigation identifies market share and asset scale as the key channels through which market power influences welfare outcomes. These findings not only offer new empirical evidence on the nuanced role of market power but also provide actionable insights for designing targeted regulatory policies to enhance efficiency and equity in agricultural markets.

Keywords: Market power; Welfare loss; V-shape; Market share; Asset scale (search for similar items in EconPapers)
JEL-codes: L13 L22 Q13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:152:y:2025:i:c:s0264999325002391

DOI: 10.1016/j.econmod.2025.107244

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