Perspectives on Global Concentration and Public Policy

This paper is an essay in political economy. It defines globalization and discusses its key role in economic development over the past two centuries as well as today. Globalization may have broadened markets, thereby affecting the nature of competition within those larger markets, or it may have simply introduced more trade or foreign direct investment to existing markets. One conclusion is that there is no global market for high value food, or for any particular high value food. To date the impacts of multinational firms in political forums at the state, regional or national as well as the global level have been in many instances as important as their impacts on economic markets. Issues and concerns discussed range from general observations on governance of the global economy to the impact of global concentration on specific problems in the agricultural and food markets of the United States. We conclude that the scope and extent of public policy is a direct function of the degree of development and globalization in an economy.International Development, International Relations/Trade, Political Economy,

Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case

This report analyzes the economic impact of price fixing in the wet corn milling industry on consumers in the State of Michigan. Two of the companies who produce citric acid have pleaded guilty to fixing its price. In this report we assume that price fixing also occurred among HFCS producers. Given the structure of the corn wet milling industry and the direct purchaser industries, the overcharge is essentially uniform across buyers and selling arrangements. We develop an actual economic model of price transmission based upon the three facts: 1) The overcharge as a percent of the processed product value at wholesale and at retail is small, 2) Fixed proportion technology, and 3) consumers have imperfect information about prices so a small price change has no effect on their purchase behavior. These facts establish that 100 percent or more of the common overcharge will be passed through to consumers. In a more general economic model, we analyze pass through when consumer demand is not perfectly inelastic. For different strategies (profit maximization, sales maximization subject to a target level of profit, and loss leader strategies) and for different market structures (competitive, monopoly, oligopoly), the rate of pass through is 100 percent or greater given certain documented characteristics of the industries in this case. Given the prior points consumer damages are the common overcharges for each commodity times the amount of the commodity sold during the damage period. This is a lower bound estimate of consumer damages because pass through may well be greater than 100%.price fixing, overcharge, cost pass through, fixed proportion production technology, flexible demand specifications, competitive structure, Agribusiness, Crop Production/Industries, Demand and Price Analysis,

An Antitrust Economic Analysis of Stop & Shop's Proposed Acquisition of the Big V Shop Rite Supermarket Chain

In early 2002, the Royal Ahold subsidiary, Stop & Shop Supermarkets, offered to purchase the Big V supermarket chain, which was in bankruptcy court after three successive, unsuccessful leveraged buyouts over the past ten years. At a later date, Pathmark Supermarkets joined the offer to purchase. Big V was Wakefern Food Corporations largest member. The acquisition was a horizontal merger in at least three local markets, Newburgh NJ, Poughkeepsie NY, and Trenton NJ. This research was conducted for the Wakefern Food Corporation who provided much of the underlying data and information. We presented this report to the Bureau of Competition, Federal Trade Commission in March 2002 and to the New Jersey and New York Attorney Generals, Antitrust Section in April 2002. Thereafter, the Federal Trade Commission issued a second request in its merger review, and the bankruptcy judge ruled against the Stop & Shop/Pathmark offer. Big V subsequently was purchased by Wakefern and remains in the Shop Rite supermarket cooperative system.horizontal merger, market power, predation, Agribusiness, Industrial Organization,

SCANNER DATA: NEW OPPORTUNITIES FOR DEMAND AND COMPETITIVE STRATEGY ANALYSIS

This paper reviews prior research by agricultural economists on the demand for food products using scanner data. Thereafter, a differentiated product's oligopoly model with Bertrand price competition is developed and used to specify brand level demand and oligopoly price reaction equations. The model has sufficient detail to estimate brand level price elasticities and price response elasticities which in turn can be used to estimate three indices of market power. The first index estimated is the familiar Rothschild Index. The paper develops estimates two new indexes, the observed index and the Chamberlin quotient for tacit collusion. It concludes with comments on how the proposed method for the measurement of market power in a differentiated oligopoly can be improved.Demand and Price Analysis,

Antitrust analysis of supermarkets: global concerns playing out in local markets

This paper reviews the basic components of antitrust analysis for the supermarket industry, including definition of product and geographic markets and the measurement of market power. The analysis of prices and profits in a market structure context remains important, especially in countries such as Australia with very high supermarket concentration. Firm and brand level New Empirical Industrial Organisation models of demand and oligopoly pricing also provide insights for evaluating antitrust claims. Recent research on vertical pricing games and price transmission expand the analysis to market channel pricing issues, including coalescing power by supermarkets and food manufacturers. The issues and approaches explained in this paper are relevant for policy-orientated research on supermarkets worldwide, including Australia.market concentration, market definition, Nash–Bertrand conduct, price–cost margin, price transmission rate, unilateral and coordinated market power, Agribusiness, Industrial Organization,

Continuing Concentration in Food Industries Globally: Strategic Challenges to an Unstable Status Quo

Industrial Organization,

The Impact of the Northeastern Dairy Compact on New England Consumers: A Report from the Milk Policy Wars

This paper presents a comparative analysis of three different economic studies that played major roles in the policy debate over the Compact. It draws an important distinction between before-after and counterfactual impact analysis and highlights constraining assumptions in models. Over time the Compact increased raw milk price 2-3 cents per gallon, but if the Compact had not been in place during the first 3 years of its operation raw milk prices would have been approximately 10 cents lower. Over time retail prices went up by much more than 2-3 cents because other costs increased and channel firms increased tacit collusion and net profits. Studies give different counterfactual estimates for retail prices without the Compact. They range from a drop of 5.7 cents per gallon to 20.7 cents per gallon and are very sensitive to modeling approach. Comparative analysis, as done in this article, should contribute to policy formulation rather than appearing ex post.Agricultural and Food Policy, Demand and Price Analysis, Livestock Production/Industries,

Continuing Concentration in the U.S.: Strategic Challenges to an Unstable Status Quo

Industrial Organization,

Pricing and Policy Problems in the Northeast Fluid Milk Industry

This article documents the need for reform of milk pricing in the Northeast. The New York price gouging law can be recast as a fair share law. This new milk policy "kills two birds with one stone." It corrects regional inequities in raw milk pricing by reforming the pricing of milk at retail by limiting and redistributing excessive retail margins to farmers and consumers. The fair share policy relieves allocative price inefficiency, improves the performance of the federal milk market order pool, and improves the general performance of the Northeast dairy farming and fluid milk industries.market power, bargaining, over-order premiums, fair share pricing, Livestock Production/Industries,

THE PERFORMANCE OF AGRICULTURAL MARKETING COOPERATIVES IN DIFFERENTIATED PRODUCT MARKETS

Cooperatives, product differentiation, agricultural marketing, Agribusiness,