Market Power and Contestability in Factor Markets: The Case of Tomato Pricing

Phillip Hone
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Phillip Hone: Deakin University

Economic Analysis and Policy, 1997, vol. 27, issue 1, 59-73

Abstract: Industry analysts, such as the Industry Commission (1991), have generally argued against government intervention to deal with market power in factor markets when the markets involved are highly contestable. In this paper it is shown that, under some conditions, the combination of a high degree of market concentration and contestability may create efficiency problems. The critical conditions are when industry output is small relative to the minimum efficient scale of the operations of the factor consumers and the marginal value products of the factor consumers are not constant over substantial ranges of input use. The potential policy implications of this set of circumstances are examined in the context of the Victorian tomato processing industry.

JEL-codes: L13 Q13 (search for similar items in EconPapers)
Date: 1997
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