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Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities

  • Koichi Yamaura EMAIL logo and Tian Xia
Published/Copyright: February 5, 2015
Journal of Agricultural & Food Industrial Organization
From the journal Journal of Agricultural & Food Industrial Organization Volume 14 Issue 1

Abstract

Two features of international markets of agricultural commodities are bilateral market power of exporting and importing countries and the coexistence of non-genetically modified (non-GM) and genetically modified (GM) products. The two features were not taken into account in most extant studies on market power in international agricultural commodity markets. This research develops a bilateral oligopoly model with the interaction between non-GM and GM commodity and conducts an empirical estimation for U.S.–Japan soybean trade. The estimation results show that U.S. exporters and Japanese importers are almost equally sharing the dominance of market power. The analysis in this research provides new measures of market power and improves the understanding on world soybean markets.

Keywords: bilateral oligopoly; market power; non-GM soybeans; vertically differentiated products
JEL: Q17; F12; D43

Appendix: Derivation of the degree of dominance (α and 1−α) of importers and exporters in terms of market power

The degrees (α and 1−α) of dominance of importers and exporters depend on the factors that affect the relative market power of importers and exporters. For importers, the cost shifters for competing soybean importing countries can influence their market power in international markets. The market power of exporters will be affected by the cost shifters for competing soybean exporting countries. In addition, the prices of the vertically differentiated substitute, GM soybeans, will impact the relative market power of importers and exporters. Thus, we specify the degrees (α and 1−α) of dominance of importers and exporters as functions of these factors,

α=gWN,RL,PGM,JP,PGM,USand1−α=1−gWN,RL,PGM,JP,PGM,US

where WN is a vector of the cost shifters for competing soybean exporting countries, RL is a vector of the cost shifters for competing soybean importing countries, PGM,JP and PGM,US are the prices of the vertically differentiated substitute, GM soybeans, in Japan and the United States.

In addition, the functional forms used for α and 1−α need to guarantee α∈0,1 but impose no sign constraints on parameters so that we can allow the flexibility for data to find the sign, magnitude, and significance of the effect of each factor. The functional form, 11+expγX, can keep its value in the range of 0,1 and do not impose sign constraints on the coefficient (γ) of its argument (X), so that we set the degree of dominance as

[6]α=gWN,RL,PGM,JP,PGM,US=11+expΦWN,RL,PGM,JP,PGM,USand
[7]1−α=1−gWN,RL,PGM,JP,PGM,US=expΦWN,RL,PGM,JP,PGM,US1+expΦWN,RL,PGM,JP,PGM,US.

Then we use a linear functional form for Φ(WN,RL,PGM,JP,PGM,US) in order to avoid too complicated final empirical specification for the econometric model. So we have

[8]ΦWN,RL,PGM,JP,PGM,US=δ1+δ2PGM,JP+δ3PGM,US+ϕWN+τRL,

where δ1, δ2, δ3, ϕ, τ are parameters or vectors of parameters to be estimated. We substitute [8] into [6] and [7] to obtain the specifications for the degrees of dominance of importers and exporters,

[9]α=gWN,RL,PGM,JP,PGM,US=11+expδ1+δ2PGM,JP+δ3PGM,US+ϕWN+τRLand
[10]1−α=1−gWN,RL,PGM,JP,PGM,US=expδ1+δ2PGM,JP+δ3PGM,US+ϕWN+τRL1+expδ1+δ2PGM,JP+δ3PGM,US+ϕWN+τRL.

The function forms in [9] and [10] can guarantee α∈0,1 but impose no sign constraints on parameters.

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Published Online: 2015-2-5
Published in Print: 2016-1-1

©2016 by De Gruyter

Articles in the same Issue

  1. Frontmatter
  3. Non-Tariff Measures When Alternative Regulatory Tools Can Be Chosen
  4. Mergers and Acquisitions (M&As), Market Structure and Inventive Activity in the Agricultural Biotechnology Industry
  5. Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities
  6. Testing for Oligopsony Power in the US Green Skin Avocado Market
  7. Innovation in the Seed Market: The Role of IPRs and Commercialization Rules
  8. Modeling US Farmer Soybean Seed Choice with Path Dependencies: Inevitable Patented Seed Market Dominance?
  9. Partial Adherence to Voluntary Quality Standards for Experience Goods
  10. Investigating the Price Transmission Mechanisms of Greek Fresh Potatoes, Tomatoes and Cucumbers Markets
  11. Channel Concentration and Retail Prices: Evidence from the Traditional Cheese Market of Cyprus
  12. Price Dependence between Different Beef Cuts and Quality Grades: A Copula Approach at the Retail Level for the U.S. Beef Industry
  13. Factors Associated with Alcoholic Beverages Consumption in Russia: A Discrete Choice Model
https://doi.org/10.1515/jafio-2013-0020
Keywords for this article
bilateral oligopoly; market power; non-GM soybeans; vertically differentiated products

Articles in the same Issue

  1. Frontmatter
  3. Non-Tariff Measures When Alternative Regulatory Tools Can Be Chosen
  4. Mergers and Acquisitions (M&As), Market Structure and Inventive Activity in the Agricultural Biotechnology Industry
  5. Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities
  6. Testing for Oligopsony Power in the US Green Skin Avocado Market
  7. Innovation in the Seed Market: The Role of IPRs and Commercialization Rules
  8. Modeling US Farmer Soybean Seed Choice with Path Dependencies: Inevitable Patented Seed Market Dominance?
  9. Partial Adherence to Voluntary Quality Standards for Experience Goods
  10. Investigating the Price Transmission Mechanisms of Greek Fresh Potatoes, Tomatoes and Cucumbers Markets
  11. Channel Concentration and Retail Prices: Evidence from the Traditional Cheese Market of Cyprus
  12. Price Dependence between Different Beef Cuts and Quality Grades: A Copula Approach at the Retail Level for the U.S. Beef Industry
  13. Factors Associated with Alcoholic Beverages Consumption in Russia: A Discrete Choice Model
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