Working Paper: CEPR ID: DP17785
Authors: Azzeddine Azzam; Jordi Jaumandreu; Rigoberto Lopez
Abstract: Market power can be present in both a firm’s product and input markets, allowing for supranormal profits to the detriment of social welfare. However, identification is challenging because it requires unbiased estimates of production elasticities under the interwoven presence of monopsony power and non-neutral productivity. We propose a way to measure market power in the product market and several input markets of a firm that is robust to biased technological change. The inference can be checked by assessing how much each market contributes to the gross profits of the firm. We illustrate the method with data from the highly concentrated US meatpacking industry, which is often suspected of exploiting livestock farmers and immigrant workers. We conclude that the prices in the product and livestock input markets are competitive, but also that production workers receive only 60% of the value of their marginal productivity.
Keywords: Market Power
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market power (L11) | supranormal profits (D42) |
| supranormal profits (D42) | detrimental to social welfare (I30) |
| biased technological change (O33) | market power measurement (L11) |
| production elasticities (E23) | market power (L11) |
| labor-augmenting productivity (J24) | share of labor costs in variable costs (J30) |
| input market power (D43) | monopsony power in labor markets (J42) |
| estimated average percentage markup (M31) | market power in product market (L11) |