Economics Research Institute Study Paper
Utah State University Department of Economics
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This paper incorporates inventory dynamics into an analysis of market power. Using a model in which each fIrm accounts for the effect of its current action on the current and future actions of itself and its competitors, we show that measures of market power that ignore inventory dynamics are biased. We then apply the model to the beef-packing industry using annual data on cattle stocks, slaughter and prices from 1933-1999. Our estimates suggest that static measures overestimate the amount of market power exerted by beef-packing fIrms.
Hunnicutt, Lynn and Aadland, David, "Market Power With Dynamic Inventory Constraints: The Bias in Standard Measures" (2002). Economic Research Institute Study Papers. Paper 248.