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

Published online by Cambridge University Press:  28 April 2015

Sanjib Bhuyan  and
Rigoberto A. Lopez
Sanjib Bhuyan
Affiliation:
Department of Agricultural Economics, North Dakota State University
Rigoberto A. Lopez
Affiliation:
Department of Agricultural and Resource Economics, University of Connecticut
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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.

Keywords

food and tobacco industriesmarket poweroligopoly regimeswelfare loss
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 27 , Issue 2 , December 1995 , pp. 577 - 587
Copyright
Copyright © Southern Agricultural Economics Association 1995

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