Research On Market Power’s Formation And Influences Of China’s Food Industry

In this paper, a systematic analysis framework has been constructed and applied to empirically investigate the formation and influences of market power in China’s main food industry sectors fully and deeply.Firstly, the dissertation takes the first step to employ the most frontier Primal-Dual Solow Residual approach to simultaneously measure oligopoly and oligopsony power of the selected sectors. Results indicate that China’s cigarette, sugar and rice processing sectors exert both strong oligopsony and oligopoly power in the raw material market and product market respectively, and the former is stronger. It’s the first time to measure oligopsony power of China’s food industry.Then, the main elements influencing market power in China’s food processing sectors has been empirically analyzed via an econometrical model. Results show that, in different sectors, the inputs of advertising, research&development (R&D) and employee training, as well as long investment and tax exert different influences on market power, including positive and negative effects. The variables such as subsidy, inventory and state-controlling, however, generate negative effects on market power in all sectors. It’s also the first time to analyze the formation of market power empirically.Finally, econometrical approaches are used to analyze the impacts of market power on price transmission, allocative efficiency, X-efficiency and profit efficiency at short term, as well as return of scale, productivity and technical efficiency at long term. Results indicate that:(1) as significant asymmetric price transmission exists in China’s pork industry, diseases’ impact on retail prices of pork is greater than that on purchase prices of hogs. China’s pork retailers have a certain degree of market power, which is the main source of the asymmetry of price transmission in pork industry. Different types of security incidents impact pork price and its transmission at different directions and size.(2) Some degree of allocative efficiency losses is proved to be induced by market power. This effect varies across all sectors, for the market powers are significant different in these sectors. A kind of positive correlation is basically shown between market power and allocative efficiency loss, which means stronger market power tends to produce more allocative efficiency loss, except in beet sugar industry.(3) Reinforcement of market power will promote firms’X efficiency in most sectors, which refuses the Quiet Life Hypothesis. In all sectors, influence of market power on X efficiency in state-controlled enterprises is weaker than that in non-state enterprises, reflecting the state-controlled enterprises are less efficient than the non-state enterprises in a certain degree.(4) Increase of market power will rise firms’ profit efficiency in most sectors. And influence of market power on profit efficiency in state-controlled enterprises is weaker than that in non-state enterprises, which indirectly manifests non-state enterprises are more efficient than state-controlled enterprises.(5) There is increasing return of scale in cigarette industry, but decreasing return of scale in the other industries. In most sectors, market power generates significant negative influences on productivity and scale economy.(6) The effects of market power on technical efficiency vary in both direction and significance in different sectors. Overall, significant effects are more than insignificant effects. The results indicate that we can not make a certain conclusion of market power’s influences on technical efficiency in all sectors.