John R. Schroeter

Marketing Margins, Market Power, and Price Uncertainty

This paper provides a conceptual and empirical framework for analyzing marketing margins in a noncompetitive food-processing industry facing output price uncertainty. The framework allows the decomposition of observed margins into components reflecting the marginal cost of the processing industry, oligopoly/oligopsony price distortions, and an output price risk component. The empirical procedure is applied to a time series of spreads between wholesale pork prices and farm prices of market hogs. The principal finding is that, while farm/wholesale margins are more consistent with competitive performance now than they were fifteen years ago, the output price risk component persisted throughout the sample period.

The Tradeoff between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing

In this paper we model the tradeoff between regional oligopsony power and cost efficiency resulting from consolidation in a food processing industry. The model can be used to calculate the cost reductions necessary to offset the anticompetitive effects of market power and to compare them to actual cost savings achieved through plant scale or multiplant operating economies. For an application, we choose the beef packing industry. For this case, we find that the estimated cost savings necessary to neutralize the anticompetitive effects of consolidation in beef packing are about half the actual cost savings from scale economies.

Advertising and Competition in Routine Legal Service Markets: An Empirical Investigation

This studys findings, together with the results of earlier studies of the relationship between advertis ing and market prices, provide considerable empirical support for the pro-competitive view of seller advertising. Data on attorney fees an d advertising practices in seventeen metropolitan areas across the U. S. were used to estimate the effect of market advertising intensity o n firm demand elasticities, holding other possible influencing factor s constant. The results obtained for all three routine legal services examined are consistent with the hypothesis that advertising increas es competition among sellers in a market. Copyright 1987 by Blackwell Publishing Ltd.

Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef

Econometric methods for assessing the degree of market power typically rely on a maintained hypothesis of price-taking behavior on one side of the market or the other. In the analysis of bilateral oligopoly, however, one would like to leave open the question of whether buyers or sellers (or both) behave competitively while allowing for the possible exercise of market power on either side. In this paper, we address the problem of measuring market power in bilateral oligopoly. This requires that we first distinguish among three candidate equilibrium concepts: bilateral price-taking, seller price-taking, and buyer price-taking. Choosing among them comes down to a test of nonnested, nonlinear, simultaneous equation models. Our application to the U.S. wholesale market for beef, characterized by high degrees of concentration among both sellers (beef packers) and buyers (primarily retail grocery chains), reveals seller price-taking among the three candidates to be the most consistent with the data. In particular, the hypothesis of price-taking conduct on both sides of the market can be rejected. This is a conclusion that would not have been reached had we considered monopoly conduct by sellers as the only alternative to perfect competition.

The effects of the business cycle on oligopoly coordination: Evidence from the U.S. rayon industry

Recent game-theoretic studies of the effects of the business cycle on oligopoly coordination predict that coordination is weakest when demand is high and expected future profit is lower. An empirical model that uses a conjectural elasticity term to measure the degree of coordination is developed to test for these two effects. The rayon industry of the 1930s is one that exhibited significantly non-competitive conduct that appears to have varied, in degree, with fluctuations in demand. Application of the empirical model to data from this industry produces results that support the predictions of recent theoretical models.

Attorney Advertising and the Quality of Routine Legal Services

This study examines the relationship between advertising and the quality of three relatively routine legal services. The nature of the services examined made it possible to use attorney time input data to measure output quality. The studys data were collected via attorney surveys conducted in seventeen metropolitan areas across the U.S. The studys findings suggest that advertising and average output quality are inversely related in routine legal service markets. The policy implications of such findings depend critically on the level of offered quality prior to the advent of advertising. If one assumes that attorneys offered inefficiently high levels of service quality to justify their non-competitive prices, then this studys findings suggest that advertising serves to move the average level of quality in the direction of greater efficiency.

Cigarettes and addiction information: simulating the demand effects of the tobacco industry's 'conspiracy of silence'

Although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962, the information did not become available to the US public until 1979 when the Surgeon General disclosed it (US Department of Health, Education, and Welfare, 1979). This study simulates the impact this information would have had on the demand for cigarettes had it been released in 1962. The simulations build on past work by Fenn et al. (2001) who found evidence that the release of addiction information resulted in a structural shift in demand in 1979. In the present study, the econometric results from Fenn et al. (2001) are used to compute simulated time paths for state-level per capita consumption under the hypothetical scenario involving the earlier release of the addiction information. Using these simulated consumption paths; the projected reductions in cigarette sales revenue are calculated. These dollar figures provide a benchmark against which to judge the compensation amounts that the industry must pay because of recent tobacco lawsuit settlements.

Measuring Market Power in Food-Processing Industries: Discussion

Focuses on the measurement of market power in the beef processing industry in the United States. Causal linkage between concentrated industrial structure and antisocial economic performance; Structure-conduct-performance paradigm; Basic model for fed-cattle studies.

Measuring the nearness of modern near-monies: Evidence from the 1980s

Abstract Empirical studies of substitutability among monetary assets generally ignore financial instruments that only recently have become prominent. We remedy this deficiency by investigating substitution behavior within a portfolio of near-monies, including money market accounts and interest-bearing checkable deposits, as well as conventional checking, savings, and time deposits, using a technique of production economics that recently has been applied to the issue of monetary asset substitution. Our findings reveal significant substitutability between the “modern” money market account asset and narrow money. Results also indicate that interest-bearing checkable deposits substitute more readily with savings-type assets than with conventional transaction deposits.

Counterpoint: Competition and Value-Of-Service Pricing in the Residential Real Estate Brokerage Market

The services of residential real estate brokers are normally priced at a fixed percentage of the selling price of the house. Since the direct cost of selling a house is virtually unrelated to house value, this custom is an example of value-of-service pricing-a practice often regarded as prima facie evidence of collusive price discrimination. This article presents a simple model of the market for real estate brokerage services in which value-of-service pricing emerges as a property of competitive equilibrium. Thus, inferences of noncompetitive broker conduct, based on the prevalence of percentage-of-house-value pricing, may be incorrect.