Does Vertical Integration Effect Market Power? Evidence from U.S. Food Manufacturing Industries

Journal of Agricultural and Applied Economics, Apr 2005 by Bhuyan, Sanjib

3 see Bhuyan and Lopez for a detailed discussion on their NEIO methodology and estimated results.

4 Although some may argue that the dependent variable in Bhuyan is an index of market power, given the discussions in Bresnahan or Schmalensee, it should be agreed that it was merely an index of industry profitability and was an accounting measure. Accordingly, given the very similar but parallel objectives of the current study and Bhuyan, it is not surprising that both studies follow an almost identical approach to building their respective empirical models, albeit with different dependent variables.

5 see Martin (1993, Chapters 16, 17. and 18) for a detailed discussion on the modeling approach adopted here and improvements that have been made in such a modeling approach.

6 This transformation is done to limit the predicted values of the dependent variable (L) within its theoretical boundaries of O and 1. Given such theoretical boundaries of the dependent variable, correct interpretation of the impact of explanatory variables on L is ineffectual without such transformation. see Caves and Bradburd (p. 274) for a similar transformation. Such a transformation, however, does not render the estimated model a logit (or discrete choice) model.

[Received May 2002; Accepted October 2004.]

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