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

Paulo Scalco, Rigoberto Lopez and Xi He

Applied Economics Letters, 2017, vol. 24, issue 16, 1173-1176

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.

Date: 2017
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DOI: 10.1080/13504851.2016.1262515

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