Market dynamics in food supply chains: The impact of globalization and consolidation on firms' market power

Abstract

The author examines whether ownership and increased competitive pressure affect food retailers' market power, analyzing whether all actors involved in the food supply chain deviate from the pricing behavior that exists under perfect competition. A method proposed by Roeger is used to estimate monopoly and monopsony market power, relaxing the assumptions of perfect competition and constant returns to scale, and avoiding any endogeneity issues. The results obtained indicate that foreign investments and consolidation have a positive and significant impact on food processors' and retailers' mark-ups. Food processors, agricultural producers, and wholesalers have lower price-cost margins than retailers, whereas retailers exert monopsonistic power in the upstream food market as well. The results are robust for various estimation techniques and specifications. © 2012 Wiley Periodicals, Inc.