Power imbalances in French food retailing: Evidence from a production function approach to estimate market power

Abstract

Figure 1: Densities and Cumulative Distributions (CDFs) of markups for Top-6 and fringe firms; Development of Markups over time

Markup estimation: A comparison of contemporary methods at the example of European food retailers

“…In our case study, the PFA delivers results that we perceive as more reasonable as they are much closer to previous studies than the SFA estimates (Gohin & Guyomard, 2000; Hirsch & Koppenberg, 2020; Sckokai et al, 2013). In addition, the PFA markups show a positive and significant connection with industry concentration while the SFA markups are hardly yielding any relationship with concentration.…”

“…On the other hand, the PFA does not provide a direct estimate of the cost elasticity/MC like the SFA 7 , but requires further regressions to decompose markup into cost and demand side components (see De Loecker & Warzynski, 2012;De Loecker et al, 2020;Hirsch & Koppenberg, 2020). Besides, we might be interested in obtaining markups per product category in multi-output settings.…”

“…The intuition is that, compared to fringe firms, the large retail chains which dominate a market have distribution networks, centrally coordinated procurement and benefit from advertising advantages that go beyond usual economies of scale and enhance productivity (Ellickson, 2007, 2013). The threshold of 4% is adopted since most of the countries included in our analysis exhibit a sharp drop between the last firm above the 4% market share mark and the first below it (Hirsch & Koppenberg, 2020).…”

“…For instance, analyzing the U.S. food processing industry on the sectoral level Lopez et al (2002) as well as Lopez et al (2018) find that more concentrated sectors exhibit significantly larger industry‐level markups. In a study on the French food retail sector, Hirsch and Koppenberg (2020) estimate that markups of firms belonging to the Top‐6 national food retail chains are 9.1 percentage points larger than those of fringe firms. The larger the market share of these big retail chains, that is, the higher the concentration, the larger will be the industry‐wide markup.…”

Output market power and firm characteristics in dairy processing: Evidence from three EU countries

“…A substantial amount of research has been done on market power in food industries and retailing, which indicates deviations from competitive behaviour, such as asymmetric price and price volatility transmission along the chain (Assefa et al, 2017), excessive prices charged by US dairy cooperatives towards dairy processors (Cakir & Balagtas, 2012) or the exertion of market power by retailers towards consumers (Hirsch & Koppenberg, 2020;McCorriston, 2014). The majority of studies on market power investigates pricing above marginal cost in output markets (markup), or below the marginal value product in procurement (markdown) representing common definitions of market power (Bonanno et al, 2018;Sheldon & Sperling, 2003;Simeone et al, 2017).…”