Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

34

Publisher

Utah State University Department of Economics

Publication Date

2000

First Page

1

Last Page

24

Abstract

This paper incorporates inventory dynamics into an analysis of market power. A Coumot duopoly model of competition is presented in which firms account for the effects of current choices on their competitors' current actions on future actions (both their own and their competitors '). We show that measures of market power which ignore inventory dynamics produce biased estimates of true market power, although the direction of the bias cannot be theoretically determined. We then apply the model to the beef packing industry using data on cattle stocks and slaughter from 1948-1999. Our estimates suggest that static measures underestimate true market power levels.


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