Market Power of Domestic Marketers and its Influence on the Consequences of the Korea–US and Korea–Australia FTAs on the Beef Market

Byeong Il Ahn, Rodolfo M. Nayga

Research output: Contribution to journalArticlepeer-review

Abstract

Domestic, US and Australian beef, which are differentiated by country of origin, are sold in Korea. In this differentiated product market, tariff reductions through Free Trade Agreements (FTAs) are expected to strengthen the competitiveness of imported beef and, therefore, to mitigate the effects arising from the market power of domestic marketers. The present study develops a simulation model that evaluates this mitigating effect by explicitly reflecting the market structure that domestic beef marketers constitute. The simulation results indicate that the farm-retail marketing margin would decrease by 10.59% or 6.79% due to the Korea–US and Korea–Australia FTAs, respectively, if domestic beef marketers formed a cartel or an oligopoly market (i.e. the degree of market power is 0.5), while the marketing margin under a competitive market scenario is simulated to have no change. The value of beef production would decrease by 1009 million dollars if the marketers form a cartel and hence exercise monopoly power. The FTAs are simulated to reduce the value of beef production by 564 million dollars under the competitive market scenario.

Original languageEnglish
Pages (from-to)170-188
Number of pages19
JournalGlobal Economic Review
Volume45
Issue number2
DOIs
Publication statusPublished - 2016 Apr 2
Externally publishedYes

Keywords

  • FTA
  • Market power
  • beef market
  • excess profits
  • simulation model
  • tariff reduction

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Political Science and International Relations

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