Measuring the Market Power of the Portuguese Milk Industry

This paper is based on the previous work of Appelbaum (Journal of Econometrics, 1979, 9, pp. 283± 94; 1982, 19, pp. 287± 99). Iwata (Econometrics 1974, 42, pp. 947± 66) and Rogers (PhD Dissertation, George Washington University, 1983). We estimate the degree of market power of an oligopolistic industry, using a linear system and the 2SLS estimation method. Our departure point is the work of Appelbaum (1982) where a ̀ market power index’ is estimated for each of the sample’s 25 years. As the market power index depends functionally on the conjectural elasticity, the goal is to obtain annual estimates for that elasticity. For this purpose, Appelbaum defines a non-linear simultaneous-equation system and obtains, with non-linear methods, the conjectural elasticity estimates for each year of the sample. Considering the conjectural elasticity’s functional form that Appelbaum adopts, we use a different approach and obtain a linear system that is easier to estimate. Due to the particular features of the industry analysed, we also derive a much simpler form for the equations involved. The model’s simplicity is appealing and its generalisation to other industries with homogeneous products may be implemented with ease.