Welfare Losses Under Alternative Oligopoly Regimes: The U.S. Food and Tobacco Manufacturing Industries

Abstract This article systematically estimates the allocative efficiency losses in the U.S. food and tobacco manufacturing industries under alternative oligopoly pricing regimes using a formal model of oligopoly. Using 1987 data for 44 industries and an industry-wide oligopoly pricing scheme, these losses were estimated at approximately 3% of sales~2% in the food industries and 19% in the tobacco industries. Five additional oligopoly pricing regimes, four of which are price leaderships, are simulated and their results compared and tested relative to the industry-wide pricing regime. Findings underscore the importance of cost structure assumptions and that the impact of the type of oligopoly behavior assumed is not as dramatic when differences in demand and cost specifications are smoothed out.

[1]  Arnold C. Harberger.  Monopoly and Resource Allocation , 1954 .

[2]  G. Tullock.  THE WELFARE COSTS OF TARIFFS, MONOPOLIES, AND THEFT , 1967 .

[3]  L. Preston,et al.  Price-Cost Margins and Industry Structure , 1969 .

[4]  C. F. Phillips.  Industrial Market Structure and Economic Performance , 1971 .

[5]  H. Demsetz.  Industry Structure, Market Rivalry, and Public Policy , 1973, The Journal of Law and Economics.

[6]  J. Siegfried,et al.  The Welfare Cost of Monopoly: An Inter-Industry Analysis , 1974 .

[7]  D. Mueller,et al.  The social costs of monopoly power , 1978 .

[8]  M. Gisser,et al.  Welfare Implications of Oligopoly in U.S. Food Manufacturing , 1982 .

[9]  E. Appelbaum.  The estimation of the degree of oligopoly power , 1982 .

[10]  Roger Clarke,et al.  Market Structure and Price-Cost Margins , 1982 .

[11]  R. Glenn Hubbard,et al.  Business Cycles and the Relationship between Concentration and Price-Cost Margins , 1986 .

[12]  Micha Gisser.  Price Leadership and Welfare Losses in U.S. Manufacturing: Reply , 1986 .

[13]  Robert L. Sorensen,et al.  What determines the elasticity of industry demand , 1986 .

[14]  Stephen Martin.  Industrial Economics: Economic Analysis and Public Policy , 1988 .

[15]  Iu. Kochevrin.  The Neoclassical Theory of Production and Distribution , 1988 .

[16]  V. Dickson.  Price Leadership and Welfare Losses in U.S. Manufacturing: Comment , 1988 .

[17]  John R. Schroeter.  Estimating the Degree of Market Power in the Beef Packing Industry , 1988 .

[18]  C. Shapiro.  Theories of oligopoly behavior , 1989 .

[19]  D. Heien,et al.  The Demand for Alcoholic Beverages: Economic and Demographic Effects , 1989 .

[20]  V. Dickson,et al.  WELFARE LOSSES IN CANADIAN MANUFACTURING UNDER ALTERNATIVE OLIGOPOLY REGIMES , 1989 .

[21]  A. Azzam,et al.  TESTING OLIGOPOLISTIC AND OLIGOPSONISTIC BEHAVIOUR: AN APPLICATION TO THE US MEAT‐PACKING INDUSTRY , 1990 .

[22]  J. Perloff,et al.  Modern Industrial Organization , 1990 .

[23]  T. L. Cox,et al.  Demand for Food Fats and Oils: The Role of Demographic Variables and Government Donations , 1991 .

[24]  John M. Connor,et al.  An Economic Evaluation of Federal Antitrust Activity in the Manufacturing Industries: 1980–1985 , 1991 .

[25]  J. Willner,et al.  Where are the welfare losses of imperfect competition large , 1992 .

[26]  E. Peterson,et al.  New Estimates of Welfare and Consumer Losses in U.S. Food Manufacturing , 1994 .