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Estimating Market Power by Retailers in a Dynamic Framework: the Italian PDO Cheese Market

Authors

  • Paolo Sckokai,

  • Claudio Soregaroli,

  • Daniele Moro

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    •  All three authors are with the Istituto di Economia Agro-alimentare, Università Cattolica del Sacro Cuore, Piacenza, Italy. E-mail: paolo.sckokai@unicatt.it for correspondence. This research was carried out as part of the TRANSFOP (Transparency of Food Pricing) research project (Scientific coordinator: Steve McCorriston), funded by the European Commission under the 7th Framework programme. We are indebted to David Harvey and two anonymous referees for their helpful comments. The usual disclaimer applies.


Abstract

In this article, we evaluate the role of market power by retailers within the supply chain of Parmigiano Reggiano (PR) and Grana Padano (GP), the two most famous Italian quality cheeses. Market power is analysed in the context of a dynamic imperfect competition model of the supply chain, in which retailers are allowed to exert market power both downstream and upstream. We jointly estimate market-power parameters together with supply and demand elasticities, by means of a structural system of demand, supply and price-transmission equations, estimated using the generalised method of moments. We find evidence of downstream market power by retailers (toward final consumers) for PR and GP, but no evidence of upstream market power (toward processors/ripeners). These results may be explained by the structure of the supply chain and by the peculiar characteristics of the two cheeses.

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